Margin money, or loan margin, is the portion of the loan that is the students own contribution while availing an education loan. It is a certain percentage of the complete cost of education that the borrower is required to pay from their own funds. Most lenders do not finance 100% of the education expenses and request a percentage of margin money from the borrower. For example, if the loan margin is set at 20%, the borrower would be able to avail an education loan towards the balance 80% of their expenses.
The margin money requirement means that the borrower would need to arrange for funds prior to the lender disbursing the loan for the balance amount. There are two ways in which this can be done, one of which involves directly paying the university or college the amount and sharing the receipt with the lender. Post this, the lender would release funds towards the education loan from their end.
The minimum loan margin is 10%, and public-sector banks need to follow it. However, there are different cases where the margin money in education loans would be calculated differently. For instance, if the borrower is willing to pay an amount of 20 lakhs on their own, meaning 40% of the total amount, the bank will increase the margin money from 10% to 40% automatically.
It is important to note that there is no scope for any confusion regarding the margin money if the borrower is capable of paying the remaining amount. However, most of the time, such borrowers do not have the means to pay the remaining amount, which can lead to misunderstandings between the bank and the borrower regarding margin money in education loans.
