Role Of A Co-applicant in Education Loans: Eligibility & Insights

Getting a loan for abroad education is a big responsibility, involving various factors like eligibility, income assessment, and repayment terms. To simplify this, many borrowers choose to have a co-applicant or co-borrower in education loans. This means two individuals apply for the loan together, sharing responsibilities. However, if the co-applicant doesn’t meet eligibility requirements, it can hinder loan approval. Role of a co-applicant in education loan is important in influencing loan approval and terms, especially when dealing with reputable lenders for international education loans.

Key Takeaways- 

Co-applicants share the responsibilities of abroad education loans. They play a crucial role in influencing loan approval and terms.

• Co-applicants must be blood relatives, willing to be the primary debtor according to the eligibility criteria. Eligibility criteria for co-applicants vary by country. Different countries have specific requirements for who can be a co-applicant
• Both the primary borrower and co-applicant share legal responsibility for loan repayments. Co-applicant’s credit score is considered, impacting both parties
• Advantages include increased approval chances, lower interest rates, and shared responsibility
• Active Indian bank account and specific documentation are required

Who Is A Co-applicant In Education Loan?

A co-applicant in an education loan is someone with a stable financial profile who jointly signs the loan agreement with the borrower. In education loans, the co-applicant becomes the primary contact for banks if the student borrower fails to repay on time. Different lenders may use various terms for co-applicants. The co-applicant involved in the underwriting process can sometimes act as an alternative to the main applicant. Unlike a co-signer, a co-applicant actively shares the loan burden rather than just serving as a backup payment method.

Eligibility Criteria Of A Co-applicant In Education Loan

The main role of a co-applicant or co-borrower in student financing in a joint loan is to provide a financial guarantee. Even the sum lent is based on the income of the borrower and the co-applicant. If you fail to repay the loan, it is the duty of the co-applicant to do so. As a result, it is important to consider the consequences of becoming a co-applicant, and understand what a co-applicant means in education loan and just how important he or she is. Most lenders of education loan policies in India state that only a parent or a close relative may be listed as an education loan co-applicant. 

Generally, there are two co-applicant involved in an education loan- 

Primary Co-applicant: Students who wish to opt for secured education loans from government banks can include their parents as co-applicants, regardless of their financial situation. In simpler words, students may select retired workers, workers, and others without a steady income as primary co-applicants for education loans in government banks.

Financial Co-applicant: In the secured education loan system, a financial co-applicant is needed only if students are unable to appoint persons with a permanent income as their primary co-applicants. Anyone who is linked to the loan borrowers by blood can be a financial co-applicant. For financial co-applicants, first cousins, own family, paternal uncle or aunt, and maternal uncle or aunt are some of the chosen options. These people must have a steady stream of income and must have all of the required documents in place to justify the same.

Education loan criteria of a co-applicant in an education loan includes both basic requirements and additional factors that lenders consider. Here is a detailed outline of the eligibility criteria for a co-applicant:

Basic eligibility criteria:

Relationship: The joint applicant for a student loan can be a parent, legal guardian, sibling, or any blood relative of the student applying for the education loan.

Primary debtor: The co-applicant must be willing to be the primary debtor for the loan. This means they will take responsibility for the loan repayment if the student is unable to do so.

Indian bank account: The co-applicant must have an active Indian bank account that allows them to sign cheques. This is important for loan disbursement and repayment purposes.

Although, a few banks also mention providing an education loan without a co-applicant. This is because, as lenders issue large amounts of education loans, it is critical to their values to guarantee that the applicant may be counted on to make periodic repayments. When lenders advise students to appoint a family member as an education loan co-applicant, they guarantee that this condition is fulfilled and that in the case of a mishap, the burden of repaying the whole education loan debt falls to this co-applicant for the education loan.

Additional Factors Considered For A Role Of Co-Applicant In Education Loans:

1. CIBIL score: The co-applicant’s CIBIL score is an important consideration for lenders. The CIBIL score reflects the individual’s creditworthiness and is based on factors such as credit history and repayment patterns. A higher CIBIL score increases the chances of loan approval.
2. Income Tax Returns (ITR) document: Lenders typically require the co-applicant to submit their Income Tax Returns (ITR) document. This document provides crucial financial information that helps the lender assess the co-applicant’s income and financial stability.
3. Income proof for salaried individuals: If the co-applicant is a salaried individual, they will need to submit their salary slips for the last 6-8 months as income proof. This allows the lender to evaluate their financial background.
4. Income proof for self-employed individuals: If the co-applicant is self-employed, they will need to provide various documents as income proof, including GST registration proof, Partnership Deed or Memorandum of Association (MOA) and Articles of Association (AOA), Certificate of Incorporation or Registration Certificate, and financial statements of the business for the last six months.
5. Annual income: Lenders assess the co-applicant’s annual income as part of the loan evaluation process. The minimum income requirement may vary depending on the lender. Meeting the lender’s minimum income criteria increases the likelihood of loan approval.

It’s important to note that specific eligibility criteria may vary among lenders, and it is advisable to check with individual financial institutions for their exact requirements.

Co-Applicant For Various Study Overseas Destinations

The majority of financial institutions prefer students, parents, grandparents, or first-blood relatives as co-applicants for education loans in India for study abroad. However, there are some exclusions. Keep reading to find out more! 

Country	Co-Applicant Eligibility
Australia	Parents, siblings, grandparents, and maternal/paternal grandparents if property is jointly owned by other family members.
United Kingdom	Accepts only students or parents as co-applicants for an overseas education loan.
United States of America	No specific requirements; anyone can be a co-applicant, provided they meet financial eligibility criteria.
Canada	Accepts first-blood relatives and family members as co-applicants, as long as they meet the financial eligibility criteria.
Ireland	Accommodating to any co-applicant meeting financial requirements.
New Zealand	Parents, siblings, and grandparents are eligible to become co-applicants for an overseas education loan.
Sweden	The Swedish Embassy’s Visa Immigration Officer does not consider the loan sanction letter. Only students showing funds in their savings accounts are required. Fixed deposits and joint accounts are not accepted.

Who Can Be A Co-Applicant For An Education Loan In India? 

You must have a co-borrower/co-signer for your education loan process. Since Indian lenders too have specific eligibility criteria for co-applicants, not everyone in the family can be a co-applicant. The table below shows who is accepted as a co-applicant by various lenders.

Lenders	Accepted as co-applicant
Government banks	Parents / Parents-in-law, Siblings, Parents siblings, Spouse, First cousins
Private banks	Parents / Parents-in-law, Siblings, Spouse
NBFCs	Parents / Parents-in-law, Siblings (preferable brother over sister), Spouse, Brother-in-law, Parents siblings, First cousins

Is the Loan Process Affected By Role Of Co-Applicant In Education Loans With Low CIBIL Score?

When applying for a joint education loan, both parties are collectively responsible, which also means their CIBIL scores are taken into consideration as well. In some instances, the bank reviews the borrower with a lower CIBIL score before sanctioning the loan amount in a personal loan. When it comes to credit ratings, for education loan with low CIBIL Score, a co-applicant cannot assist you in improving your ranking. Furthermore, if you can not repay the loan on time, you would have a detrimental effect on the co-applicant’s credit score. One area where the co-applicant will assist you is with their debt-to-income ratio (DTI). A co-applicant with a low DTI increases the likelihood of loan acceptance when their loans and revenue are factored in with yours. This may also be seen as a criterion for obtaining a lower interest rate or a larger credit cap.

Advantages Of Having A Co-Applicant In Education Loans:

There are several advantages to having a co-applicant for an education loan, especially in India. Here are some of the key benefits:

Increased chances of loan approval: A co-applicant, typically someone with a strong credit score and stable income, improves the overall creditworthiness of the loan application. This makes it more likely for the lender to approve the loan, especially if the primary borrower (the student) has limited credit history.

Lower interest rates: With a co-applicant, lenders perceive the loan as less risky and may offer lower interest rates. This can significantly reduce the total cost of the loan over its lifetime.

Higher loan amount: With a co-applicant’s income added to the equation, lenders might be willing to approve a larger loan amount, covering more of your education expenses.

Shared responsibility: The financial burden of repaying the loan is shared between the co-applicant and the student. This can provide peace of mind and ease the pressure, especially during the initial years of employment when repayment begins.

Credit history building: For students with no or limited credit history, having a co-applicant with a good credit score can help them build their own credit. This can be beneficial in the future when the student needs to apply for other loans or credit cards.

Safety net: In case of unforeseen circumstances where the student is unable to make repayments, the co-applicant is legally responsible for fulfilling the loan obligation. This provides a safety net for both the lender and the student. 

Disadvantages Of A Co-Applicant In Student Loans:

While having a co-applicant can significantly improve your chances of getting an education loan and potentially secure lower interest rates, it’s not without its downsides. Here are some of the disadvantages to consider before choosing this route:

• Even if you make your repayments on time, the loan amount will still be factored into your co-applicant’s debt-to-income ratio. This could affect their ability to qualify for other loans or credit cards in the future.

• Money can be a sensitive topic, and managing a joint financial obligation can put strain on your relationship with your co-applicant. Open and honest communication is crucial to avoid misunderstandings and resentment.

•  Some lenders may involve the co-applicant in all loan-related decisions, even if you are the primary borrower. This can limit your flexibility and control over the loan terms.

•  If your co-applicant defaults on the loan, you become solely responsible for the remaining debt. This can have a significant financial burden on you, especially if you are just starting your career.

Financial Implications & Shared Liabilities Of A Co-Applicant In Education Loans

Here are just five key points to consider regarding the financial implications and shared liabilities of a co-applicant. Carefully understand these risks and responsibilities before deciding to become a co-applicant for any loan, especially an education loan with long-term financial commitments.

• Both the co-applicant and the primary borrower are legally responsible for making loan repayments on time and in full. 

• The loan amount will be factored into both the co-applicant’s and the primary borrower’s debt-to-income ratios (DTI). This may affect their ability to qualify for other loans or lines of credit in the future.

•  Timely repayments will positively impact both parties’ credit scores. However, missed or late payments will hurt both scores significantly, potentially affecting their access to future loans and higher interest rates.

•  If the primary borrower defaults on the loan, the co-applicant becomes fully responsible for the remaining debt. This can have a significant financial strain on the co-applicant, potentially impacting their own savings and other financial obligations.

•  In some cases, co-applicants may be eligible for tax benefits such as interest deductions on the education loan. However, this depends on specific regulations and individual circumstances, so it’s crucial to consult a tax advisor for detailed information.

Factors To Consider When Selecting A Co-applicant In Education Loans

Selecting the right co-applicant for your education loan is crucial, as they share financial responsibility and can significantly impact your future finances. Here are some key factors to consider: 

Financial Stability:

• Income: Choose someone with a stable income exceeding their monthly expenses and existing loan commitments. A higher income allows for comfortable repayment contributions.
• Employment: Give preference to someone with a secure job and proven record of employment stability. Consistent income lowers the risk of default.
• Assets: Consider factors like owned property or investments that provide additional financial security in case of unforeseen circumstances.

 2. Creditworthiness:

• CIBIL Score: Look for a co-applicant with a strong CIBIL score (ideally above 750), indicating responsible credit management. This improves loan approval chances and potentially secures lower interest rates.
• Loan history: A co-applicant with a history of timely loan repayments reflects financial discipline and reduces risk for the lender.

3. Relationship and Trust:

• Personal familiarity: Choose someone you trust and with whom open communication is possible. Discuss loan terms, repayment plans, and potential risks transparently.
• Family ties: Family members like parents or guardians are often the go-to co-applicants. Consider their willingness and financial ability to support the loan responsibly.
• Age: Be mindful of the co-applicant’s age and retirement eligibility. Ensure they can comfortably fulfill the loan commitment until or beyond the repayment tenure.

Documents Required From A Co-Applicant For Education Loans 

Submitting complete and accurate documentation is crucial for a smooth loan application process. By providing all the necessary documents promptly, you can increase your chances of a successful loan approval. Given below are the essential documents required from a co-applicant: 

Document Type	Required Documents
Identity Proof	Government-issued Photo ID (choose one): Aadhaar card, PAN card, Voter ID card, Driving licence, Passport
Address Proof	– Utility bills (latest 3 months): electricity, water, or gas bills, rental agreement, latest agreement with landlord signature, bank statements (last 3 months), passport: valid passport showing current address
Income Proof	Salaried Co-applicant, latest 3 months’ salary slips or salary certificate, form 16 or income Tax Returns for the last 2 years, self-employed co-applicant, Income Tax Returns for the last 2 years, proof of business existence (lease deed, licence, etc.), bank statements for the last 6 months
Additional Documents	Completed and signed education loan application form, two passport-size photographs, academic documents of the student (mark sheets, acceptance letter, etc.), guarantor documents (if required by the lender)

Steps Involved In Applying For An Education Loan With A Co-applicant

Applying for an education loan with a co-applicant is also one of the crucial steps. Here are the steps that will help you for a smoother education loan process:

Step-1 Select a co-applicant with a  stable income, good credit score, and willingness to share financial responsibility. Consider factors like family ties, trust, and age.

Step -2 Check interest rates, processing fees, repayment terms, and eligibility criteria for education loans offered by different banks and non-banking financial institutions (NBFCs).

Step -3: Prepare documents for both the student and co-applicant, including identity proof, address proof, income proof, academic documents for the student, and loan application forms.

Step-4: Visit the lender’s branch or submit an online application. You can also contact a loan counsellor for guidance.

Step 5: Provide accurate and complete information about the student’s educational aspirations, course details, and anticipated expenses.

Step 6: Provide copies of all required documents for both the student and co-applicant. Ensure documents are self-attested and valid.

Step 7: The lender will verify the co-applicant’s credit score and income details.

Step 8: Upon approval, the lender will provide a loan agreement detailing terms and conditions. Sign the agreement after careful review.

Step 9: The loan amount will be disbursed directly to the educational institution or student’s account for approved expenses. Repayment commences after the grace period as per the agreed schedule.

Common Mistakes To Avoid 

By avoiding some common mistakes, you can choose a co-applicant who contributes positively to your education loan journey, minimises financial risks, and fosters a trusting and responsible partnership throughout the repayment process.

• Prioritise financial stability and good credit score over emotional closeness when choosing a co-applicant.
• Don’t rely solely on current income – choose someone with long-term job security and a retirement plan.
• Discuss loan terms, risks, and responsibilities openly with your co-applicant before applying.
• Don’t burden your co-applicant alone – explore scholarships, grants, and part-time work to ease their future obligation.
• Consider the co-applicant’s age and health to ensure they can comfortably fulfill the loan commitment without stressing their finances.

Difference Between Guarantor and Co-applicant In Education Loan

A guarantor and a co-applicant are both individuals who can help you secure a loan, but they have different roles and responsibilities. Here’s a breakdown of the key differences:

Aspect	Guarantor	Co-Applicant
Definition	A person responsible for loan repayment if the borrower defaults.	A person who jointly applies for the loan and shares equal responsibility for repayment.
Role	Acts as a backup source for repayment intervenes only if the borrower fails to repay.	Actively participates in the loan application, shares financial burden from the start.
Financial Liability	Financial responsibility is activated only in case of borrower default.	Equally responsible for loan repayment, joint liability from the beginning.
Documentation	May need to provide financial information and documents (proof of income, credit history, etc.).	Submits financial documents as part of the joint application process (proof of income, identity proof, etc.).

Why Choose UniCreds For Education Loans?

Choosing the right platform for your education loan depends on your specific needs and priorities. While UniCreds offers some advantages, it also assists you in choosing the right lender and advices you on documentation. Here’s a breakdown of why you might choose UniCreds, along with some points to consider: 

• UniCreds acts as a marketplace, comparing deals from several lenders to find the one with the lowest interest rates and best terms for you. This can save you time and money compared to approaching lenders individually.
• UniCreds facilitates certain education loans without requiring collateral, which can be helpful for students without assets.
• Some lenders on the platform offer flexible repayment options, allowing you to tailor the payment schedule to your future income potential.
• UniCreds simplifies the application process with an online platform, potentially making it faster and more convenient than traditional lender applications.

Final Thoughts

Studying abroad could entail a significant financial outlay for many. Many times, students depend on loans to realise their dream of securing an education based in a foreign land. However, opting for an education loan will surely provide a reprieve in this situation. However, it is not wise to have a role of co-applicant or co-borrower in education loan application if their debt-to-income level is equal to or lower than yours. This is because if an individual qualifies for a loan with a strong credit score and he decides to add a co-applicant with a worse credit score or a higher debt-to-income ratio, it might happen that the primary applicant will lose the loan acceptance, even if he was worthy.

FAQs

Q1.Can there be two co-applicants for an education loan?

Ans: The eligibility conditions for co-applicants for secured education loans from government banks are quite flexible because these loans require collateral in the form of different kinds of properties. Government banks allow students to choose from two categories of co-applicants for student loans in such circumstances.

Q2. Is co-borrower compulsory for education loans?

Ans: Unsecured education loans are those that do not require a co-applicant or collateral. It is a sort of loan where the borrower is only required to submit their name as a guarantee and not to attach any collateral security to the loan amount. This form of education loan is only available from foreign lenders only.

Q3.What is the responsibility of a co-applicant in an education loan?

Ans: If the loan applicant is unable to repay the education loan owing to any unforeseen circumstances, the financial institutions will only resort to a co-applicant. Co-borrowers and co-signers are terms frequently used to describe co-applicants.

Q4.What is a co-borrower on a student loan?

Ans: The co-borrower should be an Indian citizen who is willing to co-sign and execute the loan agreement and other documentation; who is capable of paying the interest during the moratorium period, which includes the study period and grace period; and who promises to do so in the event that the student is unable to repay the loan.

Q5. What is the difference between a co-applicant and a co-signer?

Ans: A co-applicant actively applies for a loan with the primary borrower, sharing equal responsibility for repayment, while a co-signer assumes the responsibility only if the primary borrower defaults, serving as a backup payment source.

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