Education Loan Refinance
Refinancing an educational loan (which can be quite beneficial) entails acquiring a new loan from either the same or an alternative financial institution. The goal is to secure more advantageous interest rates and terms of repayment. It is basically getting a new loan on better rates and terms, to pay off an existing loan.
For example, imagine a situation in which you possess an existing education loan with an interest rate hovering around 14%. However, because of market fluctuations, the interest on your loan has escalated to 16%. In this scenario, another bank may offer you a refinancing alternative, providing a loan with a tempting interest rate of 13% and there comes the benefit of refinancing your education loan.
Benefits of Education Loan Refinancing
The major benefits of refinancing your education loan are:
1. Secure Better Interest Rates
One of the main advantages of refinancing is the opportunity to secure a lower interest rate than your current loan. This means you’ll pay less over the life of the loan, reduce your monthly EMI, and manage your budget more efficiently.
2. Simplified Repayment
By refinancing, you have an option of consolidating multiple loans into a single one, streamlining your repayment process. Instead of juggling several payments, you’ll only need to make one monthly EMI, making it easier to track and manage your finances.
3. Flexible Repayment Terms
Refinancing opens up several options and allows you to choose terms as per your requirements. You might choose a repayment term that better aligns with your financial situation. You might even be able to adjust your EMI auto-debit date to match your payment schedule, giving you more control over your repayments.
4. Boosted Credit Score
A refinanced loan with more manageable monthly payments can help you stay on track with repayments, positively impacting your credit score. Regular, timely payments signal financial responsibility to future lenders.
5. Release of Cosigner
If you had a cosigner on your original loan, refinancing could release them from their obligations. Now that you have a stable job and income, the new lender will evaluate your repayment ability, potentially relieving your cosigner from further responsibility.
6. Variable or Fixed Interest Rates
Refinancing gives you the option to choose between variable or fixed interest rates, offering flexibility in how you manage your loan. If possible, aim for a fixed rate, as it provides consistency in your EMI payments.
How to Refinance your Education Loan?
Here are the major steps that you can follow to refinance your education loan:
1. Contact Your Current Lender
Begin by reaching out to your existing lender and inform them of your decision to refinance. Submit a loan foreclosure application, stating your intent to pay off the current loan.
2. Look for Better Loan Offers
Explore and compare other lenders to find better loan terms. Apply for refinancing with the lender that offers the most favorable rates and conditions, ensuring you have the required documentation ready.
3. Submit Necessary Documents
After selecting a lender, gather and submit all the required documents for your refinancing application. These typically include identity proof, income verification, and other financial records.
4. Approval and Payment
Once your application is approved, the new lender will issue a cheque to your previous lender, covering the outstanding loan amount, which initiates the loan closure process.
5. Close the Loan
Your previous lender will officially close the loan upon receiving the cheque and release your original documents. This completes your refinancing process.
Education Loan Refinancing: Required Documents
1. Loan Application Form: Start by completing the application form for the refinanced loan with the new lender.
2. Documents from Previous Lender: Provide any necessary documents from your previous lender that outline the details of your existing education loan.
3. Passport-Size Photographs: Attach two recent passport-sized photographs as part of the official documentation process.
4. KYC (Know Your Customer) Documents: Submit KYC documents, including Aadhar and PAN cards, for both the borrower and the co-applicant to verify identity.
5. Proof of Identity and Residence: Provide additional proof of identity and residence for thorough verification.
6. Bank Account Statements: Include the bank account statements of the student, co-borrower, or guarantor for the last 6 months.
7. Financial Documents: Submit financial documents such as Income Tax Returns, proof of income, and a brief statement of assets and liabilities for the parent or co-borrower.
Refinancing an education loan presents a strategic opportunity to lower interest rates, simplify repayment and enhance financial flexibility. A careful consideration of the available offers and the existing ones, can help you reach an optimum rate of interest on your loans.
