What is Margin Money in Education Loan? - A Complete Guide!

Understand What is Margin Money in Education Loan Before Applying

With the growing awareness of education and demand in the job market, students are readily looking for education loans in India. It not only helps students finance their higher education but also unlocks a plethora of prospects. As needful as it is, the process of education loan is a long and exhausting process with a lot to understand. Among all of its elements, you must know what is margin money in education loan.

If you are planning for an education loan and you are a first-time loan applicant, then you will get to know different technical words during the process. Many students find it absolutely confusing to understand this jargon related to lending. Margin money is no less and can compel you to ask what is margin in education loan. Let's understand everything related to margin money and how it affects the education loan process.

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What is Margin Money in Education Loan

Understanding the loan margin meaning helps you better navigate your education loan process and plan ahead. Comprehending what is margin in bank loan is also important as it helps you make your planning more manageable.

Margin money, sometimes also referred to as loan margin, is the amount of money needed to be paid by the borrower. It is the proportion of the entire loan amount that the borrower must contribute out of pocket, whereas the bank grants and contributes the rest. It is the difference between the amount approved by the bank and the entire amount needed (total costs). Margin in a bank loan, on the other hand, is the portion of the total that you must pay with your own money, whereas the bank will cover the remaining amount.

What is Margin in Loan Example

Let us understand what is margin in loan example if you are availing of an education loan. Simply put, the loan margin is the money that you would require to contribute from your side toward the total expenses involved in your education process. As margin money will be paid by you, the bank will subtract a specific portion of money from the total expense and give back the rest of the amount to you. So, technically, the difference between the total required sum and the total granted money is called margin money.

Assume, Ram is going to California University. Ram anticipated that the total expense that would be incurred by him would be ₹35 Lakhs. He went to the bank for the education loan process for study abroad and got a loan sanctioned of ₹25 Lakhs. It means that Ram will arrange for ₹10 Lakhs on his own. If we see this calculation from a finance (technical) point of view, the margin money for Mr. Ram will be ₹10 lakhs or 28.57% {(1-25/35)*100} of his total education expenses.

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Margin Money in Education Loan Formula: 

Margin/loan margin (deposited by student) = The total amount required - The total amount granted by the Bank

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Education Loan Margin Calculator

As we understood the margin in bank loans through example, let us take this example further and understand the calculation process of margin money in percentage.

Ram went to California University, and he required ₹10 lakhs (the amount including tuition and living expenses) in his first semester. As he approaches the bank to withdraw the loan amount, he will receive ₹714,300 as per the 28.57% loan margin calculation we mentioned above. The bank would give ₹7,14,300 to Ram only if he either pays ₹2,85,700 directly to the university and shows that margin money receipt to the bank or deposits it in the bank so that the bank can transmit the entire amount of ₹10 lakhs to Mr Ram’s university.

So, margin money is processed in the education loan by calculating it in percentage. The formula to calculate margin money in percentage is:

(1- (Total Loan Amount Approved) / Overall Education Expenses) )*100 = Percentage of Margin Money

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Features of Margin Money

If you are an aspiring candidate for higher education, it becomes vital for you to understand the concept and application of margin in education loans. That is why we have compiled some of the very crucial features of margin money that cannot be overlooked:

• Margin money in education loans is the amount that students taking loans are required to pay for their education expenses of studying abroad. 
• The education loan amount tends to be divided into different steps. Also, the loan margin would be paid according to the requirements of the bank and the loan amount.
• The percentage given by the bank for margin money is quite flickering. The percentage decreases or increases as per the loan amount asked by you as well as your capacity to pay the margin money. 
• There are a few banks that provide education loans to students with 0% margin money. 

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Understanding 0% Loan Margin

Numerous private banks and banking institutions extend education loans to students planning to study abroad with a 0% loan margin. These loans are mostly unsecured education loans.  So, you may ask, “If an aspirant like me goes to a public or private bank that is offering a 0% margin money on a loan, would I be able to make use of the benefits of NIL margin money? The answer can be yes. However, it will still differ and depend on multiple factors. So, for example, if a student applies for 80% coverage on his education loan, the margin money would be 20% in place of 0%.

It must be noted that some public-sector banks extend a 0% loan margin on secured loans. It completely depends on the criteria and the type of loan you are eligible for. So, if a bank extends a secured education loan for studying abroad, there is a potential to reduce the loan margin to even 0% on that amount. 

For example, if Ram's total education expense is 35 lakhs, he can apply for the exact amount of loan in the bank. However, if the amount of collateral pledged by him is worth ₹15 Lakhs, then the student loan margin would go up to 57.14%. More such strategies can be used to bring down loan margin to 0%.

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Relation Between Margin Money and the Overall Expenses

The margin money is inversely proportional to the overall education expenses of the student education loan. The higher you ask for the amount of the education loan, the lower its margin money would be. As we discussed above, Ram wants to go to California University for his higher studies. Here, the bank will ramp up or increase up to 100% of the amount while calculating the overall education expenses. This will, in return, decrease the overall amount of education loan margin money. We are sure that this process might not appear fair because the overall education expenses referred to in the I-20 are always greater than the actual ones.

Every bank has an upper limit on the percentage of overall expenses that it is going to fund. The percentage often varies from 85% to 100%. The balance amount is the amount that the customer tends to pay as the margin money or loan margin. The maximum part of the expense is always given out by the banks, and that is how the bank would lend the money to the student until this amount is reached, and the exact figure could vary on a case-on-case basis.

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Margin of Money Fixed by the Major Banks and NBFCs

Every bank has a fixed percentage of margin money on education loans. Be it public or private finance institutions or NBFCs, each organization carries out a similar trend.

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Fund Your Future and Education with Propelld

For those aspiring to pursue higher studies, an education loan is necessary to fund your expenses, but, at the same time, cautious financial preparation is essential due to the rapidly rising expense of education. Propelld understands it and helps you take the financial worries out so that you can focus on your education. We offer tailored financing solutions without margin money hassles you don't need. Propelld also offers numerous benefits that mainly include:

• Study Now Pay Later: The feature helps you focus on your study by allowing you to pay after you complete the course.
• Moratorium: It takes all the financial woes out of your mind by allowing you to pay smaller EMIs during your course.
• Income Share Agreement: We understand that it's not practical to pay when you are studying. The agreement allows you to pay only when you get a job.

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Conclusion

Every student who remains excited about higher studying in his dream college should also understand some of the essential parameters involved in his journey. This essential element includes understanding his education expenses. An education loan amount provides the total expenses to study abroad, which includes both tuition fees and living expenses. It is these expenses and the total amount of loan on which the loan margin depends and thereby vary with the same.

In this journey to excellence, you will always find Propelld by your side, fuelling your educational dreams. If you want to speak to the experts about strategies to placate margin money and an easy loan process, we have got your back! With that perfect assessment of the expert’s guidance, get yours done to step up your education loan application process with low-margin money and low processing time. Our team also provides the best financing options according to your educational pursuits.

Frequently Asked Questions 

Can I negotiate the loan margin provision with the bank?

Yes, it is possible to negotiate the loan margin requirement with your bank. However, the bank decides based on multiple factors. These factors can include your bank credit score, annual income, and the course of study that you have applied for.

‍Am I supposed to arrange my loan margin immediately?

No, being a student going to study in foreign, you can simultaneously deposit your loan margin or margin money as and when the loan amount is deposited.

When can my margin money increase? 

Your margin money can be raised if you are all set to repay more than the required payment, i.e., paying a higher amount than the percentage requested of the margin. For example, when it comes to the bank’s margin, banks set a margin of 10% and a loan amount of 50 lakhs. If you are ready to pay 20 lakhs, i.e. 40% of the total expenditure then the instant 40% hike in the margin money magically surges to 40% from 10%.

‍What are the advantages of margin money in education loans?

The banks act as an indicator of the student's commitment towards them by asking for a percentage of the loan amount as a security deposit. Margin capacity prevents over-borrowing and requires you to get only that amount that you will be able to repay. A deposit to the margin funds may be considered if you are prepared to invest more.