Credit Card Debt Effects on Your Education Loan Eligibility

If you think that getting an education loan only depends on income, admission letters, and submitting the right documents? Then you are mistaken. Most students and parents believe that getting an education loan only depends on these factors.

But that’s not the end of the story. Lenders also take a close look at your financial habits, and one of the biggest factors is credit card usage. If you or your co-applicant carries too much credit card debt, it may signal to the bank or NBFC that repaying an education loan could be risky. 

As a result, the chances of loan approval may reduce, or you may end up getting a smaller loan amount or a higher interest rate.”In this blog, we will discuss how a credit card debt can impact your education loan approval, along with some expert tips to overcome it.

1. Credit Score and Its Link to Student Loan Approval

Credit card debt can significantly impact your credit score. This is one of the first things that lenders check. Let us understand how it is directly connected to student loan approval.

Timely Payments

• If an individual makes timely payments, it helps them build a positive credit score, also known as a CIBIL score. This score demonstrates the financial discipline of the loan borrower. Lenders consider this to assess the risk associated with lending loans. Thus, a good credit score builds trust with the lenders and improves your chances of loan approval.

Delayed or Missed Payments

• Like how timely payments can improve your Credit score, a delay in payments and or any missed payment can pull down your credit score. This signals financial irresponsibility, and the loan may get rejected. Or the lender may offer the loan amount at a higher interest rate.

Thus, the credit score directly impacts education loan approval.

2. Debt-to-Income Ratio

This is to check if the individual is capable enough to pay back the loan that they are applying for after all the financial obligations.

• Consider if a large portion of your income is already being paid to your financial obligations, such as credit card bills, loans, rent, and other household expenses. If only a small portion of the income is left, based on that, the lender determines the loan amount.

• If this ratio is high, which means > 40, then the chances are less that the lender approves the loan.

Let us understand this better with an example:

Let us suppose your gross monthly income: 1,00,000

Total Monthly Financial Obligations( Credit Bills, Rent, etc) : 40,000

Debt-to-Income Ratio: Total monthly financial obligations  X 100

                                             Gross Monthly Income

                                  = 40,000 X 100

                                      1,00,000

                             DTI = 40%

As we previously discussed, if the DTI is <= 40, then the lender may consider offering an education loan.

In the above, the student is eligible for an education loan.

3. Getting Less Loan Amount Than You Need

• Credit card debt can impact your eligible loan amount. Let us imagine that you need a 40 lakh education loan. Considering your existing credit card debt, the lender reduces the eligible loan amount.

•  This may lead you to contribute more from your own pocket. This happens to lots of students, and it can mess up your entire college plan.

4. Higher Interest Rates and Less Flexibility

Even if you get the loan, the bank might impose more restrictions on you, such as :

• Make you pay higher interest (more money overall)

• Strict co-applicants and guarantor requirements

• Asking for more paperwork and guarantees

• Shorter repayment tenure

All this is because of some old credit card bills, and this may increase the overall cost of borrowing.

5. Strict Co-applicant Requirements

• Since most of the education loans and lenders require your parents to be the co-applicants, their credit card debt can impact your education loan.

• If your parents have credit card debts and delay payments, this may raise a concern for the lender about the loan repayment.

• Hence, lenders ask for additional co-applicants. 

Expert Tips to Improve Your Loan Approval Chances

Below is the expert advice you can use to improve your education loan chances.

• Make sure to clear your outstanding dues before you apply for an education loan.

• Maintain low credit utilization- ideally below 30% of the credit limit.

  • For example, if your credit card limit is 50,000, do not spend more than 15,000 in a month.

• Check your credit report and try to fix the errors before approaching the lender.

• It is recommended to avoid minimum payments only and pay the full balance if possible. This ensures a positive impact on the credit score.

How WeMakeScholars Can Help

WeMakeScholars, an organisation partnered with over 15 public and private lenders. When you apply for an education loan through us, our experienced team will help you find the most suitable loan for your higher studies.

• Approaching the lender directly can affect your education loan with credit card debt.

• Applying through WeMakeScholars can help you get the best deal.

• Since we are partnered with 15-plus lenders, we can negotiate with the lenders and try to improve the education loan approval chances, even with credit card debts.

• Our dedicated and experienced financial officers(FO) will guide you appropriately in improving your credit score. This will improve your education loan approval chances also.

• Even after the loan is sanctioned, our financial officers can extend their support in guiding you on how to maintain your credit history, which is a bonus.

What Our Students Say About Us

Success Story:

#wemakescholars-I had a wonderful experience with WeMakeScholars for my education loan process. The team was very professional, transparent, and supportive throughout the journey. A special thanks to Rahul, who guided me at every step with patience and clarity. He explained all the options in detail, made the documentation process smooth, and was always available to answer my queries.

Thanks to his support, I could complete the process without any stress. I truly recommend WeMakeScholars to every student looking for an education loan – they genuinely make things easier!- Urva Prajapati

How to Apply for an Education Loan Via WeMakeScholars

Here is the step-by-step process of how to apply for an education loan  through WeMakeScholars

Step 1: Visit the WeMakeScholars website and request a callback.

Step 2: Within 1-2 days, you will receive a call from our financial officer assigned to you.

Step 3: The financial officer, based on the details you provide, analyzes your profile and suggests with loan type, documents required, etc.

Step 4: A secure documents upload link will be shared with you to upload the necessary documents.

Step 5: From here onwards, your financial officer takes charge and keeps you updated with the status of the loan and ensures a smooth and hassle-free education loan process.

Step 6: Wherever possible, our financial officer negotiates better terms and shorter processing fees with the lender.

Applying for Education loans through WeMakeScholars can ensure fast loan approvals. We have a team of dedicated financial officers who lend support throughout the loan process. Our financial officers will provide end-to-end support, making your education loan process stress-free.

 Conclusion

A credit card debt can have a huge impact on education loan approvals. However, with the right guidance, one can overcome the issues related to the credit card debt. In this blog, we have covered how a credit card debt can impact education loan approvals. We have also discussed the expert tips to fix the issues related to credit card debts. Additionally, we have covered how WeMakeScholars can help with getting an education loan with credit card issues.

Follow the above steps and get education loans to fullfill your abroad education dreams.