With the rising demand for advanced degrees, the need for a degree from a top-notch university has become very important. Several universities globally have an impeccable track record when it comes to assuring students of a bright future. In the midst of the fourth industrial revolution, many courses haven’t been included in Indian universities. For instance, students wanting to study AI, Machine Learning, the Internet of Things, etc., usually seek a course in a foreign university due to more advanced labs and better research facilities.
So the need for student loans for studying abroad has seen an upward trend in the last decade and witnessed exponential growth. Several banks and NBFCs provide both secured and unsecured loans, i.e., loans with collateral and loans without collateral. The process of getting the loan is by and large the same, but the eligibility criteria slightly differ when it comes to unsecured loans. Earlier education loans were only processed through banks, but the process has become very efficient and hassle-free with the advent of tech and finance.
Secured Education Loans For Studying Abroad
Secured education loans are those that are backed by tangible or intangible assets. For those assets that have more liquidity like FD and Gold, banks tend to sanction loans that are 90% of the value of the assets. While for those assets with relatively less liquidity, like Flats or Land property(Non-Agricultural lands), the loan amount is pegged around 65-75% of the value of the pledged assets.
Secured loans are easily sanctioned since the banks are assured of the returns as they have collateral that they can liquidate in case of non-repayment of the loan. Usually, higher amounts are sanctioned for collateral-backed loans when compared with unsecured loans. Also, the rate of interest for secured loans is less because of reduced risk factors. As mentioned in the table, several factors should be considered before moving forward with the loan application. This is where Fintech companies with expertise in abroad education loans step in and make the whole process simple for the borrower without him needing to understand all the nitty=gritty.
Unsecured Education Loans For Studying Abroad
Unsecured loans are those that aren’t backed by a tangible or intangible asset. The need for unsecured loans has risen in the last couple of decades since there is a rising number of students from lower and middle-income families wanting to go abroad for higher studies. More and more students want to add an advanced degree from a world-class university abroad, but the lack of assets to back the loan is the biggest hurdle in realizing their dreams.
Now some private banks and NBFCs give unsecured loans for education abroad. There are several criteria that banks take into account before sanctioning the loan. But there are certain things like higher interest rates, lower loan amounts, and partial payment during the repayment period are few downsides to unsecured loans. However, if we see things in totality, it is a wonderful option for those wanting to study abroad and who don’t have the means to pledge security.
Pointers To Check For Abroad Education Loans
One should check some pointers before moving ahead with a particular loan type, and this helps loan applicants in making a wise and informed decision. So if someone is planning to take an education loan for abroad studies, it is advisable to check on the following pointers:
- Interest Rate Charged by the Bank: The lower the interest rate, the better it is, and in cases of secured loans, public sector banks like SBI and BoB charge less interest than others. While in the case of unsecured loans, rates vary depending on the private bank or NBFC.
- Loan Tenure: Repayment of a loan involves a substantial amount of money that has to be paid, and it is distributed in EMIs. Usually, the loan tenure is of 5 years to 20 years, depending on the bank and the type of loan. So future income estimates must be considered before choosing the loan tenure.
- Expenses covered by the loan: Since the cost of living is pretty in foreign countries like the US, Canada, Australia, etc., the expenses covered by the loan must be thought thoroughly. One can see the prospects of part-time work at the place of education and then calculate the living expenses that need to be financed.
- Margin Money: Margin money is the percentage of the loan amount that the customer has to pay, and it differs from one bank to another. So lower the margin money, the better it is for the students.
- Tax benefits in taking the loan: Some loans help in getting a deduction in taxes, so one must assess the possible tax benefit that comes with the loan scheme. It’s always advised to get the loan from Fintech companies in the space of abroad education like GyanDhan since they take care of all this and explain the future advantages of different available loans.
Difference between loans taken from a Public Sector Bank, Private Bank, and an NBFC
Basically, there are some advantages and disadvantages with all the lenders. A borrower’s need is the pivot point around which the terms and conditions of a loan move. For instance, if a loan applicant can pledge collateral or have a cosigner, public sector banks are the best. For secured loans, public sector banks charge the most feasible interest rate with a considerably long loan tenure.
However, if you can’t pledge collateral, then private sector banks are the best choice since public sector banks have a 7.5 lakh cap when it comes to unsecured loans. NBFCs should be your last resort in case of unsecured loans since they strictly consider the CIBIL score. If you have a good CIBIL score, then there isn’t a problem, while in cases of low CIBIL score, the process gets complicated. The choice of college is another factor that private banks and NBFCs consider when it comes to sanctioning loans since college choice has a bearing on the student’s future earnings.
So all loans are good, and every financial institution has its positive and negative aspects when it comes to student loans for abroad education.