Why go for an Education Loan?
Education Loan Process
Determining the cost of education and loan amount
from different lenders
Terminology Related to the Education Loan Process
Typically, in educational loans, collateral refers to physical or financial assets that serve as a guarantee for the loan. Its purpose is to mitigate the risk associated with loan repayment. Given that students often secure employment upon finishing their studies, banks lack assurance regarding their future income and financial standing. Hence, the necessity for collateral.
A co-signer is someone who signs the loan along with the borrower, making them responsible for repayments if the borrower defaults.
A grace period is a time when a borrower is not expected to make loan payments. This period is also known as the moratorium period.
Annual Percentage Rate
Annual percentage rate, also known as APR, includes the borrower’s interest rate and all the fees and costs along with the loan. It is always higher than the interest rate.
Variable Interest Rates
Variable interest rates fluctuate with the market, it doesn’t remain stable throughout the loan tenure.
Which is better? Loans With Collateral or Without Collateral?
Education loans are of two types; one is taken with collateral, a secured loan, and the other is without collateral, an unsecured loan. It is essential to know the difference between them before choosing the one that is right for you.
Secured Educational Loans
Collateral loans, often termed as secured loans, involve pledging something of higher monetary value than the loan itself. This pledged asset serves as security, safeguarding the lender in case the borrower cannot repay the loan. In the event of a default, the lender has the option to sell the asset to recover the owed amount.
How does a collateral loan work?
- The rate of interest is lower if compared to another one
- A borrower can offer any collateral, such as FD, immovable property, insurance policy, etc., against which the loan can be offered
- The approval rate is higher
- When a student is studying, no prepayment is required
- The repayment period is longer
- Parental income is not necessary to get approval
- Maximum Loan Amount Against Collateral
- Most public and private banks and financial institutions offer education loans to study abroad. Although the amount of sanctioned education loan can vary basis the value of the collateral asset, some lenders have a slab of an amount to offer the loan.
Unsecured Educational Loans
Unsecured loans, also known as non-collateral loans, are granted based on the borrower’s creditworthiness rather than the evaluation of collateral. Approval for these loans is given to eligible borrowers who meet specific criteria, with credit scores being a critical factor in the decision-making process.
How does a non-collateral loan work?
- The rate of interest can be higher, usually, 1.6%-4.5%, which is higher than the collateral loan
- It is not necessary to offer any collateral to the lender for loan approval
- The repayment period is shorter when compared to collateral loans
- It can be a risky affair to get this loan. Therefore, obtaining an unsecured loan from the bank is not so simple
- A certain amount of repayment needs to be done during the study period
- Parental income should be the proof for loan approval
Eligibility Criteria For Education Loan to Study Abroad
While most banks provide education loans for studying abroad, it does have certain eligibility criteria. Students can avail of education loans for abroad studies without collateral or with collateral. The eligibility criteria may vary from provider to provider but the following are some common rules for study abroad loans.
- The applicant must be an Indian citizen
- Should have scored at least 50% marks in high school and graduation
- Should have received admission to courses in foreign institutions after passing requisite entrance exams.
- Should be able to provide documents as proof of income.