Securing Education Loan Without Credit Score: Check Simple Tips For Quick Approval
One of the most common ways to secure an education loan without a credit score is by applying with a co-applicant, usually a parent or guardian.
Education is one of the most significant investments a person can make, but it often comes with a hefty price tag.
For many students, securing an education loan becomes essential to pursuing their academic goals. A major obstacle, though, for some is the lack of a credit score. In India, credit scores are important when applying for loans, as they give lenders a sense of the borrower's financial responsibility.
But what if you don't have a credit score? As it could be a common instance in the case of students, many of the borrowers seeking education loans may not have any credit score as they won't have an income or would have never secured a loan or credit card.
With the evolving financial needs of various categories of customers, many banks and non-banking financial companies are offering education loans to students irrespective of their credit score. Let's take a look at how you can still avail an education loan with a low credit score:
Importance Of Credit Score
A credit score is a three-digit number of an individual's creditworthiness, ranging from 300 to 900. It reflects your history of repaying loans, credit card bills and other financial obligations. Lenders use this score to assess the risk of lending to you.
A high score indicates a reliable borrower, while a low score could imply a higher risk. But if you've never taken a loan or used a credit card, you might not have a credit score.
Most lenders often look for borrowers with a high credit score when approving a loan application. Generally, a credit score of 750 and above is preferred by lenders.
Getting Education Loan Without Credit Score
You can explore alternative loan options and take a few simple steps to access education loans despite having a low or no credit score.
Loans With A Co-Applicant
One of the most common ways to secure an education loan without a credit score is by applying with a co-applicant, usually a parent or guardian.
Lenders allow the income and creditworthiness of the co-applicant to be considered when assessing the loan application. The co-applicant's strong credit score and financial stability can improve the chances of approval.
Government Education Loan Schemes
The Indian government offers education loans through schemes, such as PM Vidyalakshmi. This Union government scheme aims to provide financial support to meritorious students, ensuring that monetary constraints do not hinder their pursuit of higher education.
Launched as part of the National Education Policy 2020, the PM Vidyalakshmi scheme assists students enrolled in both public and private higher education institutions. It offers collateral-free and guarantor-free loans from banks and financial institutions, covering tuition fees and other course-related expenses.
NBFCs
Prominent NBFCs and banks have become viable options for students facing financial constraints, offering competitive education loan interest rates. For instance, HDFC Bank offers education loans starting at 9.55% per annum, while ICICI Bank offers up to Rs 3 crore.
To increase the chances of loan approval, most lenders require a strong co-applicant with a good credit score or collateral as part of the application process.
Scholarships, Grants
Scholarships and grants are excellent alternatives to education loans as they do not require repayment. These funds can cover tuition fees, living expenses or both, depending on the scholarship.
Students should research and apply for as many scholarships as possible, as this can significantly reduce the financial burden of their education.
Key Factors To Take Into Account
Interest rates: Loans without a credit score or history may come with higher interest rates.
Amount: The absence of collateral or a co-applicant with a solid credit profile could limit the maximum loan amount.
Repayment terms: It's important to understand the repayment schedule, penalties for missed EMIs and the impact on the co-applicant's credit score.
Hidden charges: Be sure to clarify any processing fees, prepayment penalties, or other hidden charges with the lender.
While not having a credit score can complicate securing an education loan, there are alternatives and options available to students. The way to navigate this process is to thoroughly research and assess the available options.
