Loans For Graduates

Why do graduates need loans?

Loans for graduates are beneficial in many ways –

• It helps you pursue further studies beyond graduation and qualify for better and higher paying jobs.
• It can fund your trip overseas for higher studies as well as pay the tuition
• It provides funding for setting up your own business.
• It saves you the trouble of looking for venture capital.
• It can help give you the much needed start in life as you take your first steps in your chosen career.

Who provides loans for graduates?

Many banks, financial institutions, and government institutions provide loans for graduates. You can visit the websites of various banks, NBFCs, and government institutions that provide loans for graduates. Here is what you should look for when you visit the various websites –

• Check the features carefully and make sure the fit your needs
• Check the terms of the loan – interest rate, term, and other conditions – carefully to see if you can meet them.
• Use the online EMI calculator – most websites have one – to compute the approximate EMI that you would pay against repayment of the loan.
• Take a moment to consider how you will repay the loan.
• Find a guarantor – it helps in getting loans sanctioned quickly.

Characteristics of Loans for Graduates in India

The Indian culture is different from that in the west. Indian graduates therefore have different needs and loans for graduates in India, are tailored to meet those needs. Let us take a look at the various types of loans available to Indian Graduates and the features of each -

Loan for Higher Education

Higher Education Loans are loans that are offered specifically for pursuing academics beyond graduation. The general features of education loans for Graduates include –

• The purpose of the loan is to fund the fees for post-graduation, vocational, technical, or professional courses.
• Loans for higher education are typically available for up to 15 years though this may vary from one institution to another and also with loan amount.
• Moratorium – period before the EMI commences – is typically 1 year in most loans.
• As a general practice, no processing fee is charged on loans for higher studies. Even when education loans do apply processing fee, it is usually not more than 1% of loan amount.
• Most institutions offering loans to pursue higher studies insist on taking a life insurance policy on the life of the graduate as security against the loan.
• Premium for the life insurance policy must be paid by the graduate in addition to the EMI for the education loan.

Loans for starting business

Many students prefer to set up their own business after having graduated. This may be a fresh start or a branch of an existing family business. Banks, NBFCs, and other institutions offer business start-up loans to graduates for setting up their new business. Here are the key features of most business startup loans –

• Business start-up loans are provided for the specific purpose of starting business
• A processing fee of up to 2.5% may be charged
• The loan is usually granted for a period of up to 5 years.
• The loan may be utilized to purchase equipment required to start a business
• Institutions may require collateral, insurance, or both as security against repayment.
• For taking a business loan for graduates, the business model and plan may be required to be submitted.

Loans for Graduates who are awaiting Employment

• The loan may be utilized for any purpose. There is no specific requirement as to utilization of loan amount
• The term of the loan is usually flexible – the graduate may repay the loan as and when he begins earning and has funds available.
• Most institutions do not require any collateral against the loan. However, they may require insurance on the life of the borrower.
• While the loan term is flexible, there may be some upper and lower limits applicable.

Eligibility for Loans for Graduates

Loans for graduates are available only to Indian citizens who have completed their graduation and are looking to pursue further studies, set up a business, or get a start in life. The general eligibility criteria for graduates wanting to take loans are -

• The applicant should be an Indian citizen.
• The applicant should be above age 18.
• The applicant must have completed graduation in any stream.
• In case of education loans for graduates, the applicant must have cleared the selection process and gained admission into the course being pursued.
• In case of business startup loan for graduates, the applicant must be a graduate and must have a clear idea about the business he desires to set-up.

Documents required for Loans for Graduates

The following are some of the documents that would be required at the time of applying for loan for graduates –

• Passport, Aadhar card, Drivers’ license, or other proof of identity
• Utility bill, passport, or other proof of address
• Bank statement for the past 12 months (the period may vary from institution to institution).
• PAN card
• Proof of income if employed, self-employed, or having income from other sources
• Class 10 or equivalent certificate, Class 12 or equivalent certificate, Graduation certificate
• Admission papers including letter of admission in case of education loan for graduates
• Documentation regarding the fee structure of the institution he wishes to join
• Details regarding living expenses
• Details regarding the business to be set up – in case of start-up loans for graduates
• Any other document that the concerned institution may demand

While this list is comprehensive and covers most of the required documents, it is not exhaustive. Please visit the website or office of the concerned institution where you are applying for loan for a more complete list and details.

Interest Rate on Loans for Graduates

Rate of interest varies form one institution to another. It is advisable to compare the interest rates and other terms before applying.

In general, interest rates on loans for graduates range between 12 to 17 percent per annum for loan amounts of approximately 4 lakh for education. If the purpose of loan is to start up a business – start up loan – the rates may be slightly higher – 11 – 19%.

For graduates awaiting employment, rates range between 11 to 16%.

Interest rates may be fixed or floating depending on the policy of the institution from where you are taking the loan.

It is advisable to understand the interest computation of various institutions offering loans to graduates before applying for loan.

The EMI calculator tool available on the websites of most institutions can help compute the amount of EMI you will pay for varying loan amounts and terms based on the interest rate applied by the respective institutions.

Collateral

Most banks and NBFCs do not ask for collateral against loans for graduates. However, this does not necessarily mean that no security will be demanded. Various banks and institutions may ask for hypothecation of assets – particularly in case of loan for equipment or start up loans – or a guarantor in case of education loans.

Institutions may also demand collateral in the form of pre-owned assets such as gold or property as security against repayment.

They may also require the asset to be of a certain minimum value.

The actual amount of loan offered may also vary depending on the collateral supplied – expressed in terms of percentage of value of collateral.

There are many different types of loan products available in the market. The features, interest rates, and other terms of loan vary from institution to institution and from one type of loan to another.

There are many other loans that can be taken by graduates for their requirements. You can compare the benefits of various loans and choose the ideal one that is suited to your current financial condition.