One of the best things that have happened to the present generation is the liberty to spread their wings and reach the zenith of success. Studying at a world-class educational institution is a dream come true for every student. Earlier, this perk was available to a select few, and the rest had to kill their dreams but not anymore. Things have changed for good, and a robust credit culture has evolved in India that encourages borrowing and gives education loans for studies abroad at very reasonable repayment terms.
Earlier the task of lending was limited to Public Sector Banks (PSBs), and the lending terms were so stringent that lending was restricted mainly to well-heeled people. With the emergence of Non-Banking Financial Companies(NBFCs), International lenders, and Private Banks, the tables have turned.
The Types of Loans Offered by Lenders
Lenders typically have two options: one is secured loans, and the other is unsecured loans. Both the loans have their own upside and downside. So, there is nothing called a better option, and it solely depends on the borrowing capacity of the lender.
Secured Loans: These are the loans that are backed by collateral or, in layperson’s term, the loans for which you have to pledge some asset, e.g. Land(Non-Agricultural), Flat, Residential home, Gold, Fixed Deposit, etc. Banks do the asset valuation and, based on that valuation, they decide the loan amount. The more liquid the asset, the greater will be the loan amount. For instance, in the case of Gold, up to 90% of the value of an asset is given as a loan. While in the case of real estate, it is roughly around 70%. Most PSBs have the best secured loan schemes.
Unsecured Loans: These are loans that are not backed by collateral. A major section of the borrower doesn’t have the assets to back their loan as the borrowing amount often runs in several lakhs, and it is almost impossible for someone from a lower-middle-class family to pledge such high-value assets. Unsecured loans are the panacea to those who want education loans for abroad studies without having the need to pledge any asset.
Factors to be considered for abroad education loans
|Factors to consider||Secured Loans||Unsecured Loans|
|Financial Institution providing the loan||PSBs, Private Banks, NBFCs||Private Banks, NBFCs and International lenders|
|Maximum Loan amount||Up to INR 1.5 Cr- By PSBs
Up to INR 1 Cr- By Private Banks
|No unsecured loan by PSBs|
|Collateral||Immovable property, Gold, FD, etc.||No need for a collateral|
|Rate Of Interest||8.85% onwards||11.25% onwards- Private Banks
12-15% onwards- NBFCs
|Loan Processing Time||Directly through banks-20-50 days.
With the help of Fintech companies working in this space- within 15 days
|With private banks-15-20 days
With NBFCs- 10-12 days.
With the help of Fintech companies working in this space-
Private Bank- 7 days
NBFCs- 3 days
|Interest Repayment in the moratorium period||No repayment in the moratorium period||Partial or Simple interest-NBFCs
Simple Interest- Private Banks
|Repayment Period||Up to 15 years- Both PSB and Private Banks||Up to 15 years- By Private banks
Up to 10 years- By PSBs
|Expenses Covered by the loan||70%-100%- PSBs||90% coverage- Private Banks
100% coverage- NBFCs
|Moratorium Period/ Repayment Holiday||One year post completion of course||One year post completion of the course|
One of the pertinent reasons people are afraid of getting loans is the lack of the right tools to ascertain the best loan. Several institutions are working in the abroad education loan space that helps students choose the best loans, but it’s always better to understand the factors that one must consider before moving ahead with the loan. The terms of loan repayment to interest rates vary from one financial institution to another. It has a significant impact on the overall loan amount to be repaid.
Some financial institutions provide less coverage than others, and it can be detrimental to a student who might find it after reaching university. So, it’s advised to have an expert by your side who can assist you in the implications of the terms and conditions. Fintech companies working in this space help potential borrowers provide a range of services from doorstep document collection to getting a reasonable repayment term.
Public Sector Banks, Private Banks, NBFCs and International Lenders- The Paradox Of Choices
A common person surfing the web can find it difficult to ascertain the right choice among a pool of options available in the lenders market. Choosing the right loan will help in getting an abroad education and ease the burden when the loan repayment starts. A smart move at the beginning can be a game-changer at the end.
When to choose PSBs?
PSBs have their own set of pros and cons; it is difficult to select or reject a loan outrightly.
Who should go with PSBs?
- For those who can pledge an asset that is acceptable by the banks.
- The loan amount needed is high.
- Need a long repayment time.
- Need a lesser rate of interest on the education loan.
Who shouldn’t go with PSBs?
- Those who can’t pledge a high-value asset.
- Their educational institution doesn’t figure in the list of institutions maintained by the banks.
When to choose Private Banks?
Private banks are always a reasonable option for abroad education loans. The lending base of a private bank is way broader than PSBs. Private banks offer both secured and unsecured loans.
Who should go with Private Banks?
- Those who aren’t able to get a loan from PSBs due to their stringent criteria.
- Those who want unsecured loans since PSBs only provide secured loans for abroad education.
- Those who can manage with a slightly higher rate of interest than PSBs.
- Need an extended repayment time (available with both secured and unsecured loans).
Who shouldn’t go with Private Banks?
- Those who can’t bear a high rate of interest.
- Those who need more than a certain amount in unsecured loans.
When to choose NBFCs?
NBFCs and International lenders are the best choices for unsecured loans since their lending limit is high, and there is no need to have collateral.
Who should go with NBFCs?
- Students who can’t afford to pledge collateral and need a high amount of loans.
- Those who have good academics and have secured admission in top universities.
- Those who can afford to pay interest during the moratorium period.
Who shouldn’t go with NBFCs?
- Those who don’t have income proof to ensure the payment of interest in the duration of studies.
- Those who are getting loans from PSBs or Private Banks.
When to choose International lenders?
International lenders lend in foreign currency, so it is not advisable for Indian students to directly approach an international lender.
Who should go with International lenders?
- Those who have tried all the options and are unable to get a loan.
- Those who have excellent academics and secured admission at some top institutions.
- Those who are ready to pay high interest rates post completion of the course.
Who shouldn’t go with International lenders?
Anyone getting a loan from either PSBs, Private Banks, or NBFCs should avoid getting an international lender loan.
Those who don’t have high-paying job prospects post completion of the course.
The moratorium period is around six months, implying an early start of repayment—those who can’t start the repayment feel the need to have a more extended moratorium.