HDFC Education loan: Interest rate and its Pros and Cons

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HDFC education loanAs the number of students pursuing education abroad is increasing, many banks have started lending educational loans with attractive schemes to these students for studying overseas. One such popular educational loan scheme was offered by Credila which was then taken over by HDFC to form HDFC Credila education loan. The HDFC education loan helps students achieve their dream of studying abroad.

 

Eligibility criteria- HDFC education loan

  1. Both, you and your co-applicant must be an Indian citizen.
  2. The co-Borrower must have an Indian bank account with cheque facility.
  3. Proof of admission in a university prior disbursement.

 

Interest rate– HDFC education loan

The aspect that needs to be taken into utmost consideration while applying for an education loan is its interest rate. HDFC education loan has a floating rate of interest that is the sum of Credila’s CBLR plus Spread (similar to Public banks’ MCLR plus spread). HDFC changes the spread with your profile and can be as low as zero and hence CBLR is the minimum possible loan. It lies from 11% to 14.5%. Currently, it has a lending rate of 12.75% per annum on an average (check current CBLR here). This CBLR has hiked from 12.05% in 2017 to 12.55% in 2018. Beware that HDFC Credila education loan interest rate is subject to change from time to time without prior notice.   

 

Simple or Compound Interest- Uncoding the marketing gimmick?

Credila interest rate

Though they have used the term “Simple” interest multiple times in this paragraph to set up a misleading image as done in the Bollywood movie “Drishyam”. If you just read it carefully 2-3 times, you will realize it means “Credila doesn’t encourage interest on interest because that is an additional burden for the applicant and parents, so, therefore they want you to make simple interest payments” Guys, just read this line again- If I borrow Rs. 10 lacs at an annual compounding interest rate of 10%, which means Rs. 1 lac will be added to my principal amount at the end of the year 1 as the year 1 interest. Hence the interest on the 2nd year will be charged on Rs. 11 lacs. But, here is the catch, if I am required to pay Rs. 1 lac every year (in monthly proportions) towards my simple interest, then how will it get compounded. As there is no pending interest nothing will be compounded. That’s what Credila meant by these lines – “Therefore, HDFC Credila products require at least the interest payment on the loan during the study period” (as highlighted in the red box above pic)

But in case, you will not pay your simple interest every month, e.g. you do not pay complete Rs. 1 lac annually, instead, you only pay Rs. 30,000, then automatically the remaining amount (Rs. 70,000) starts compounding. 

But in Govt. banks, how the interest works is, during the moratorium period that is course duration plus 6 months (extendable even to 1 year), the interest is actually simple interest. E.g. if you borrow Rs. 10 lacs at an annual interest of 10%, then at the end of year 1, the total repayable amount becomes Rs. 10 lacs + Rs. 1 lac. As you are not required to pay that Rs. 1 lac (year 1 interest), even then for the 2nd year, the interest will be charged on Rs. 10 lacs only, unlike Credila. Hence, at the end of the second year, the total repayable amount will be Rs. 10 lacs + Rs. 1 lac + Rs. 1 lac = Rs. 12 lacs instead of Rs. 12.1 lacs as happens in an annual compounding loan. 

This above example is considering that the compounding is done annually.

But, as shown below in case of the Credila’s official website, they hold all rights to calculate the interest on monthly or even at the worst on daily basis. Which means, the repayment difference between a public bank and Credila becomes drastically higher year on year. (Both the pics have been taken from the official HDFC Credila website)HDFC education loan

 

Processing fee- HDFC education loan

HDFC Credila charges a higher processing fee when compared to the public banks. The processing fee of HDFC Credila is a certain percentage of the loan amount sanctioned. It varies between 1%- 1.25% plus 18% GST. For example, if you get a loan sanction of Rs. 40 lacs from HDFC Credila, then the processing fee varies between Rs. 40,000- 50,000, plus an additional 18% GST on this, summing to Rs. 47,200- 59,000. At the same time, the processing fee of a public bank varies from no fee to a maximum of Rs. 10,000, independent on the loan sanction amount. (Speak with our team to know more about 0% processing fee options)

 

Expenses covered- HDFC education loan

HDFC Education Loan covers tuition fees, living expenses, travel expenses and expenses such as examination fees, laboratory fees etc.

 

Lending limits- HDFC education loan

Under HDFC education loan scheme for foreign education, you can avail a loan starting from INR 1 lakh. It usually can give an education loan up to 50 lacs. 

 

Repayment tenure– HDFC education loan

You need to start repaying immediately after disbursement of the first installment of the loan amount. You can repay the loan amount up to 12 years after the moratorium period.

 

Collateral or non-collateral education loan – HDFC education loan

Depending on the loan amount that you need, you may be required to pledge collateral security either in the form of an immovable property such as, residential flat/house/non-agricultural land or in the form of liquid security such as a fixed deposit issued in favor of HDFC Credila. Usually, if you plan to take a loan up to 4 lakhs, then it is collateral free. If the loan amount is above 4 lakhs, then you may have to pledge collateral except for countries like the USA and Canada. 

 

Co-applicant requirements– HDFC education loan

As per the terms of HDFC education loan mentioned on their product profile, the co-applicant must be an earning individual in India – father/mother/brother/sister (married)/spouse. By earning member, it means that you need to provide proof of income preferably in the form of ITR. In addition, documented evidence must be presented to indicate the relationship that the co-applicant shares with you. Your maternal or paternal aunt or uncle; grandparents; first cousins; if you are married, then your in-laws are also eligible to be the co-applicant if any one of the aforementioned co-applicants fails to provide collateral.

 

Application process– HDFC education loan

You need to fill the online application form after which HDFC Credila education loan team will follow-up with you. You have to provide the filled application form along with the supporting documents. Credit team will review your application and approve the educational loan. You will be required to sign the education loan agreement and thereafter,  disbursement of funds will take place electronically.

 

Documents required– HDFC education loan

Following documents are required to apply for an education loan at HDFC bank.

  1.    Filled Application Form
  2.    Photos – Applicant and Co-Applicant
  3.    Photo ID (Applicant and Co-Applicant)- Provide any one of the following
  4.    PAN card, Aadhaar card, Driving license, Passport or voter’s ID
  5.    Proof of Residence
  6.    Proof of Admission (If available)
  7.    Documents related to your Academics
  8.    Financial statement
  9.    Co-Applicant’s Income Proof
  10.    Immovable Property Documentation, if the collateral is needed

 

Pros and Cons of choosing HDFC Credila Education loan

Pros:

  1. You can avail a loan without collateral, as high as INR 35 lacs for the US and Canada. While others require collateral.
  2. You can avail 100% expense coverage. Other financial lenders that provide complete expense coverage, include NBFCs such as, Avanse and Incred whereas there are a few public banks who do not have a loan margin. (Speak with our team to know more about the 0% margin options)

Cons:

  1. HDFC education loan interest rate is quite high as compared to public banks like SBI, Bank of Baroda, Punjab National Bank, Canara which have interest rates ranging between 9.45% to 10.5%. For more information, you could see Education loan interest rates- Comparison between public and private sector banks in India.
  2. You cannot avail an HDFC Credila loan if your co-applicant is retired
  3. A co-applicant with ITR is mandatory for Credila whereas nationalized banks do not have this requirement.
  4. Credila does not accept third party collateral security whereas public banks like SBI does.
  5. As per HDFC Credila’s terms, you need to pay at least partial or full interest during your course of study.
  6. HDFC Credila charges a high processing fee which is equivalent to a certain percentage of the loan amount (usually 1%- 1.25% of the loan amount plus 18% GST on that). On the contrary, banks (both public and private) have a fixed processing fee that lies between INR 5,000 to INR 10,000. Also, there are public bank options who refund the entire processing fee, after the sanction. (Speak with our team to know more such 0% processing fee options)

 Now, the choice is yours to make! :)

Check your eligibility & find the best education loan matching your profile from 10+ banks in India

 

If you are an aspiring student applying for an abroad education loan, you can request a callback from the WeMakeScholars team. The financial officer will get back to you and guide you until sanction. Please note there is NO fee charged by WeMakeScholars. Being a Digital India campaign supported organization, all the services are at free of cost.

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Written by

Pursuing #PhD from #Stanford University. Higher Education Expert- Stanford Scholarship winner- Interested in helping out fellow students with the scholarships and education loans.

 

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