When an aspiring student applies for an education loan to study abroad, they come across many financial terms like quantum of finance, repayment period, moratorium period and margin money. Not to mention, margin money in education loans is one of the most confusing financial jargon for many. Most banks keep this rate between 10-25% on education loans availed. In this blog, we will help you understand all you need to know about this term, in detail.
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Also Read: Check out our blog on one of the most flexible alternatives to finance your study abroad dreams- gold loan for education: benefits, criteria, documents & process.
What is Margin Money?
Margin money is the percentage of money that the borrower is required to contribute towards an education loan on their own. It is the difference between the total loan amount you require minus what the bank grants you.
Margin Money = Total amount required – Bank granted amount
For example: Ramesh goes to XYZ Bank to apply for an INR 50 lakh loan for his postgraduate studies in London. The bank states that it will sanction only INR 42.50 lakhs. This means that Ramesh will have to take care of INR 7.5 lakhs himself (which is 15% of the total loan amount*). Here, INR 7.5 lakhs or 15% is the Margin Money.
*To calculate the percentage of margin money, the following formula is used-
{1- (Loan amount sanctioned) / Overall expense} x 100
Considering the above example for figures, here goes the calculation of the margin money percentage calculation-
[1- (42,50,000/ 50,00,000)] x 100
[1- 0.85] x 100
0.15 x 100
15%
Relationship between Margin Money and Education Loan Amount
There exists an inverse relationship between margin money and the education loan. This means that if an education loan is high, the margin money will be less and if a borrower lowers the education loan expenses, the margin money will be high.
For example: Margin money might be at 10% on INR 50 lakhs but 15% on INR 30 lakhs by the lenders.
What is 0% Margin Money?
0% loan margin means no margin money in education loans. In such cases, the financial institution provides 100% of the education loan as asked by the borrower. Borrowers are not required to make any contributions to the overall expenditure. Here’s a list of financial institutions that have no margin money in education loans-
Also Read: Know all about LLB education loans to study abroad and the best public banks, private banks, and NBFCs providing education loans for LLB students.
Banks that Charge Margin Money
Above mentioned are the names of NBFCs (non-banking financial institutions) that offer 0% margin money in education loans. However, this is not the case with public and private banks. They have a certain percentage margin money fixed that needs to be arranged by the borrowers. It is between 10-25% for different lenders on different loan amounts. Let’s have a look at the banks and the margin money charged by them-
| IDFC First Bank NIL (However, the bank may charge 0-10% based on the student’s profile | Private Banks Charging Margin Money in Education Loans |
| Union Bank of India Up to INR 4 lakhs- NIL Above INR 4 lakhs- 5% (studies in India), 15% (studies abroad) NRI students- 15% | ICICI Bank No margin for premier Institutes 15% margin for Other category Institutes (Margin can be FD/scholarship/initial fee paid to the institute) |
| State Bank Of India Up to INR 4 lakhs- NIL Above INR 4 lakhs- 5% (studies in India), 15% (studies abroad) Global Edvantage- 10% | IDFC First Bank NIL (However, bank may charge 0-10% based on the student’s profile |
| Canara Bank Up to INR 4 lakhs- NIL Above INR 4 lakhs- 5% (studies in India), 15% (studies abroad) | Axis Bank Up to INR 4 lakhs- NIL Above INR 4 lakhs- 5% (studies in India), 15% (studies abroad) |
| Bank of Baroda Up to INR 4 lakhs- NIL Above INR 4 lakhs- 5% (studies in India), 15% (studies abroad) | YES Bank 0-15% |
| Punjab National Bank Up to INR 4 lakhs- NIL Above INR 4 lakhs- 5% (studies in India), 15% (studies abroad) | HDFC Bank Up to INR 4 lakhs- NIL Above INR 4 lakhs- 5% (studies in India), 15% (studies abroad) |
FAQs on Margin Money on Education Loans
Margin money is the percentage of money that the borrower is required to contribute towards an education loan on their own. It is the difference between the total loan amount you require minus what the bank grants you.
The minimum loan margin is 10% and public-sector banks need to follow it. However, it is set between 10-25%.
Yes, many NBFCs like InCred, Prodigy Finance, Avanse, MPower Financing, and Auxilo provide education loans without margin.
0% loan margin means no margin money in education loans. In such cases, the financial institution provides 100% of the education loan as asked by the borrower. Borrowers are not required to make any specific contributions to the overall expenditure.
To calculate the percentage of margin money, the following formula is used-
{1- (Loan amount sanctioned) / Overall expense} x 100.
This was all about margin money in education loans and how it is calculated. Though many banks keep margin money and only provide up to 100% of funds to finance your higher studies abroad, but it is not compulsory. Borrowers who need 100% finance and are unable to make self-contribution towards education loans can choose education loans from NBFCs that offer 0% loan margin.
To know more about the education loan application process, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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