When you take a loan, the bank does not give you the full amount you need. They expect you to pay a small part from your own pocket. This amount is called margin money. Many people get confused about what margin money is in loans and why banks ask for it. Well, do not worry! In this article, we will explain margin money in loans with examples from home loans, education loans, and business loans.
Margin Money Meaning in Loans
Margin money in a loan refers to your share of the cost that you pay before the bank adds its share. For example, if your house costs ₹80 lakh and the bank gives you a loan of ₹50 lakh, then you need to pay the remaining ₹30 lakh. This ₹30 lakh is your margin amount. So, in simple words, the margin money refers to your contribution.
Why Is Margin Money Required?
Usually, when you take a loan, banks do not fund 100% of your need. There is also a minimum amount of margin money that you need to provide, whether it is for a home loan or a car loan. They ask for this margin money because:
- It shares risk. If you put in money, you are less likely to default.
- It shows seriousness and proves you are also invested.
- It also keeps balance as you do not depend completely on loans.
Typical Margin Money Percentages in Different Loans
Home Loans (10–30%)
For home loans, banks usually give 70% to 90% of the property value. The remaining 10% to 30% is your margin money. For example: For a ₹40 lakh home, if the bank pays 80% amounting to ₹32 lakh, you pay ₹8 lakh.
Education Loans
For studies in India, many banks cover almost the full cost, so the margin money can be 0 to 5%. But if you are planning to study abroad, you may need to arrange 5% to 15% as margin money. Example: For a ₹20 lakh course abroad, if the bank gives 90% amounting to ₹18 lakh, you pay ₹2 lakh.
Business Loans
In business loans, lenders always look forward to seeing that you are also putting in money. Normally, margin money is 15% to 25% of the project cost. For example: For a ₹50 lakh project, if the bank gives 80% which is about ₹40 lakh, then you add ₹10 lakh.
How Margin Money Impacts Loan Approval
It is very simple to understand how margin money impacts loan approval. If you have the margin money ready with you while availing the loan, your loan is more likely to get approved. This is mainly because banks feel safe knowing you have savings to support your loan. However, if you are unable to arrange margin money, the bank may reduce the loan amount or even reject the application.
Also Read : Eligibility Criteria for Personal LoanPros and Cons of Paying Margin Money
| Pros of Margin Money | Cons of Margin Money |
| Lowers your total loan amount. | You need big savings to arrange it. |
| Reduces your EMI and interest. | It may delay your plan if you do not have enough money. |
| Builds trust with banks. | Limits your liquidity as a big part of your savings gets blocked. |
Conclusion
In simple words, in a loan, margin money is the part of the cost you pay, while the bank pays the rest. Margin money is common in home loans, education loans, and business loans.
If you need quick funds without worrying about high-interest credit, you can rely on CASHe instant personal loans. CASHe offers loans of up to ₹3 lakh through the CASHe app with a super-fast approval process. Apply now!
