Education loan: Why should you opt for a top-up loan?

With things going back to normal again even with the pandemic, students who had put on hold traveling abroad for higher studies, are now resuming their plans. Currently, the cost of such education is touching the sky. People with children studying overseas and those who plan to send their wards abroad for studies, usually take up education loans to fund their expenses for foreign studies. Having said that, during the mega-crisis times of the COVID 19 pandemic, most people were in serious financial pressure. Hence, if you are in need of some excess money, you could also opt for a top-up loan to fund your study abroad.

With increased expenses, it is often seen that parents/students falling short of money. In such a situation, you can opt for a top-up loan. The top-up loans are for those parents/students, who have already taken up an education loan.

Top-up loans can be taken from your existing bank, from where you have already taken an educational loan. Additionally, it will also be easier for you to get loan approval without much hassle, as the bank already has your details. Having said that, sanctioning an additional top-up loan also depends on the maximum loan eligibility. The bank also takes into consideration the current outstanding amount you might have as a borrower.

For instance, as a borrower, if you were eligible for a loan of Rs 50 lakhs and you had opted for a loan of only Rs 35 lakhs, you still have Rs 15 lakhs that you are eligible to opt for. Also, from the Rs 35 lakhs, if you have already paid Rs 5 lakhs, your total eligibility also increases – and you will now be eligible to take a loan of 20 lakhs more.

Instead of opting from your own bank, you can also look at other options such as other banks, NBFCs, education financing companies, who could also give you a loan at a better interest rate. You could also look at other banks, NBFCs, and education financing companies, in case your current bank refuses to approve the additional funding requirement.

Additionally, if your existing bank denies your additional loan application, instead of taking a fresh loan from the new bank, you could also try for a transfer of your existing loan from your old bank to a new lender. Keep in mind that the sanctioning of an additional loan depends on the bank’s policies, and all banks do not offer top-up loans.

While opting for a top-up loan, keep in mind that the rate of interest is higher than existing loans. With secured loans, the education loan amount is linked to the cost of education, and the value of the collateral provided by the borrower, and depending on the bank/loan financing company the top-up loan can be either at a fixed or floating rate and the interest rate could vary.

Additionally, while deciding the interest rate for the loan, various factors like the loan amount availed, loan tenure, market conditions, experience, student’s academic record, and the educational institute, are considered by the lender. Also, depending on the borrower’s credit-worthiness, the interest rate is charged. You could be also asked to provide additional collateral.