What is the Role of Co-Applicant in Education Loans

What is a Co-Applicant in Education Loans?

A co-applicant plays a very important role while availing of an education loan. Having a co-applicant mitigates the financial risk for both the borrower and the lender. A co-applicant in an education loan is an individual who signs the loan agreement alongside the primary borrower (typically the student). 

This person shares the responsibility for repaying the loan and is legally obligated to do so if the primary borrower defaults. Co-applicants are usually parents, guardians, or close relatives of the student. Their involvement can significantly improve the chances of loan approval, as it provides the lender with added security.

Having a co-applicant can also lead to better loan terms, such as a lower interest rate or a higher loan amount. The co-applicant’s financial status, credit history, and income are crucial factors that lenders consider. This arrangement reassures lenders, as the co-applicant’s financial stability increases the likelihood of timely repayments. Co-applicants must be aware of their liability and the impact on their credit score in case of non-payment.

 

Types of Co-Applicant in Education Loans

In the context of education loans, there are two types of co-applicants- Primary and Financial. Let’s understand them in more detail:

• Primary Co-Applicant

In education loans, the major co-applicants are the parents or students, regardless of their financial situation. Students may designate their parents as the primary co-applicants on their international student loan, even if they are retired pensioners or do not have a regular source of income. 

• Financial Co-Applicant

Referred to as the financial co-applicant, this person is the co-applicant’s blood-related. He or she could be an aunt, uncle, sibling, or first cousin on the mother’s or father’s side. A financial co-applicant is only needed for student loans for study abroad if the applicant is unable to designate a reliable income source as their primary co-applicant. 

 

Who Can be a Co-Applicant for an Education Loan? 

Different lenders have different co-applicant eligibility for being a co-applicant. Have a look at the eligibility requirements for public banks, private banks and NBFCs:

Public Banks	1. Parents 2. Guardian 3. Siblings (For unmarried) 4. Parents-in-law
Private Banks	1. Parents 2. Spouse 3. Siblings
NBFCs	1. Immediate Family Members 2. First cousins 3. Paternal uncles and aunts 4. Maternal uncles and aunts

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Eligibility Criteria to be a Co-Applicant in Education Loans

An individual needs to fulfill certain eligibility requirements to be a co-applicant:

• Income Proof

If the co-applicant is salaried, they need to submit income documents including salary slips, bank statements, income tax returns, etc. 

If the co-applicant is self-employed, the required documents include business address proof, balance sheets, profit and loss statements, income tax returns, and qualification certificates for professionals like doctors, CA, etc.

• Income Amount

A co-applicants annual income is considered while assessing the eligibility. They must be earning at least INR 30,000 monthly excluding any debt. 

• CIBIL Score

CIBIL score is a credit score given on the basis of a person’s financial behavior. It is considered before processing any education loan. A CIBIL score of 685 is considered really good while determining eligibility for a co-applicant.

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Difference Between a Co-applicant vs. Guarantor

Here’s a general perception that co-applicant and guarantor are the same while they are essentially very different. Here’s a detailed comparison:

Basis	Co-Applicant	Guarantor
Definition	A person who applies for a loan jointly with another borrower and shares equal responsibility for repayment.	A person who guarantees to repay a loan if the primary borrower defaults.
Legal Liability	Equally responsible for repaying the loan along with the primary applicant.	Only liable if the primary borrower defaults on payments.
Application Process	Typically undergoes the same credit and financial scrutiny as the primary applicant.	Often required to provide less extensive financial information compared to co-applicants.
Impact on Credit	Both parties’ credit histories and scores are considered and can impact approval and terms.	Usually have their credit checked but does not impact their credit score unless required to step in.
Relationship	Often family members, spouses, or business partners.	It can be family members, friends, or anyone willing to provide financial assurance.

Document Required for an Education Loan by the Co-Applicant

Different lenders may ask for different sets of documents. It also depends upon the fact whether the co-applicant is salaried or self-employed.

Below is the list of most commonly asked documents:

1. If the co-applicant is salaried

• Salary slip for the last 3 months
• Copy of form 16 or Income Tax Returns for the last two to three years
• Bank Statement for the last 6 months
• A brief statement of assets and liabilities that belong to him

• Co-applicant is self-employed

• Any business address proof (GST Certificate/ MSME Certificate/ Utility bill like electricity bill, etc.)
• TDS Certificate (Form 16A)
• Balance sheet and Profit & Loss statement for two or three financial years
• Income tax returns for the last two years 
• Qualification certificate in case a co-applicant is a doctor, chartered accountant, etc.

 

How to Apply for an Education Loan with a Co-Applicant?

A co-applicant is someone who holds a good CIBIL score, is financially stable and takes equal responsibility for repaying the loan. Generally, lenders allow your immediate family to be the co-applicants like parents, siblings, or spouses. 

Applying for an education loan with an applicant increases your chances of approval. Below is the process for applying for an education loan with a co-applicant:

• Explore available lenders: There are multiple lenders in the market. Different public and private banks and NBFCs offer different interest rates, processing fees, repayment terms, and eligibility criteria for education loans. Explore the lenders and choose what works best for you.
• Check your eligibility: Eligibility criteria include multiple aspects including your academic record, the course you are studying, the educational institution you’re enrolled in, etc. Check if you check all the boxes of eligibility.
• Select a co-applicant: Most lenders allow your immediate family to be your co-applicant. Choose a trustworthy co-applicant with reliable income and a good CIBIL score. 
• Submit the loan application: Once you’ve selected your co-applicant, carefully fill out the loan application with all the required details and submit it online or offline, whichever mode is available.
• Submit documents: Lenders may ask for documents from you or your co-applicant. Make sure that documents are valid and self-attested if required.
• Credit verification: After you’ve submitted the loan application and documents, the lender will verify your creditworthiness and disburse the loan if satisfied.

It is advisable to always check with your lender for the specific process.

Conclusion

A co-applicant is an important deciding factor when it comes to getting an education loan. Always choose a co-applicant who is eligible to hold that position. Ensure that he is trustworthy and has a reliable and stable income source. 

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