A final sanction letter enlists the final terms and conditions of the bank. The terms and conditions can broadly be classified in the following types
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Financial Terms
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Interest Rates – The Interest rate for nationalized or private banks would be mentioned like MCLR+(Margin)+ Extra/premium. For all institutions governed by RBI the interest rate is never fixed. It functions at a premium above Marginal cost of funds based lending rate. The MCLR is available on the website of the bank and it is the general cost of acquiring the funds. BLR stands for Base lending rate where in you would have the rate at which the NBFC is lending in the market. For NBFC, the process is BLR +/- premium/discount. The same would be available on the respective websites. Once you have understood the interest rates, you can calculate the present interest rate applicable
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Loan amount & margin money – The sanction letter would have the distinct mention of the amount of loan sanctioned. The same would be in INR. In case, in the future, the rupee depreciates the amount would be limited to the amount sanctioned. In case the rupee appreciates, the same would be the total amount required in dollars to study for your loan. The same would also have the concept of margin money where in financial institutions would ask you to remit the margin money alongside the loan being sanctioned. It is important to have the money to remit and incase you do not have the balance amount it would be difficult for you to remit the initial amount.
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Repayment schedule & Interest flexibility – Please check the sanction letter for the repayment schedule. There would be a mention of the interest rate flexibility too, as for education loans, there is flexibility offered during the tenor of the program.
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Documentation for Disbursal –
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Property Mortgage – All property documents starting from the first sale have to be submitted to the financial institution. The same also needs to be mortgaged. There are two types of mortgage that the financial institutions can insist – equitable and registered mortgage.
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Equitable mortgage – Equitable mortgage is when the borrower submits his original title deed to the registrar. No formal or legal document is registered with the registrar. The stamp duty involved is low and the paperwork is less.
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Registered mortgage – Registered mortgage is when the lender creates a charge on the security by registering the same with the sub registrar. The stamp duty involved is high with more paperwork.
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Personal Guarantees – The bank would ask for personal guarantees and would enlist the same to the credit rating agencies. In the future, in case the guarantor applies for a new loan the education loan would be shown as a liability in the credit report of the borrower.
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Documentation for draw-down – The financial institutions insist on the various forms of draw-down documentation. The same could be on the form of an Undertaking letter by the candidate, University schedule of funds, rental agreement by the student about his living cost. You would also have to ascertain when the living cost is reimbursed. There could be a scenario where in the living cost is reimbursed after the student has incurred the cost and then he submits the bill. Please note, it becomes tough for the student to send documents and hence please address the documentation for draw-down diligently.
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