Are you Aware of Kinds of Education Loan?

Almost all students and parents prefer to take an education loan to fulfil the financial requirements when it comes to studies abroad. The studies abroad education loan covers course fee, exam fee, cost spent on study material, accommodation charges, insurance, travel expenses and other miscellaneous expenditures as well. Also, it is crucial that parents and students comprehend the technicalities involved in the education loan process, its pros and cons before taking such a big decision.

In this article, we will try to understand the kinds of overseas education loan that a student can get from the banks. There are two types, one is the secured education loan and another one is an unsecured education loan. Let’s look at the details one by one.

Secured Education Loan -

If you are planning to take a loan of 35-45 lakhs for your master’s program or 75 lakhs and above for your under-graduation, then applying for a secured overseas education loan is the right decision. What does a secure loan mean? To borrow an amount as big as this, the applicant is asked to mortgage an asset. An asset or collateral can be an immovable property like flat, house and non-agricultural land or a liquid asset. Liquid asset includes fixed deposits, life insurance policy and government bonds. Nationalized banks, private banks and NBFCs grant secured overseas education loan up to 1.5 Cr and more in specified cases. Secured education loan levy a lower rate of interest, one of the many advantages of it.

The rate of interest applicable to secured education loan is about 9.50-10.50%. The time taken for the release of loan takes 20-30 days.

In case you fail to make the repayments, you can lose your mortgaged collateral.

Unsecured Education Loan -

Students can borrow an education loan without mortgaging collaterals. However, banks grant a loan for only those universities that are listed in ‘Bank Premier University listing’ and are recognised globally. Nationalised banks, private banks and NBFCs provide unsecured education loan but the amount sanctioned differs. Nationalised banks like State Bank of India, Bank of Baroda, provide a maximum of 7.5 lakhs of education loan whereas private banks grant up to 40 lakhs. Non-banking financial companies like HDFC Credila, Avanse, Incred, Auxilo, mostly provide unsecured education loan up to 40 lakhs. Certain factors an applicant should consider before approaching NBFCs are -

·         Academic results like 10^th, 12^th, Graduation, GRE, TOEFL/IELTS etc.

·         Co-applicant’s income. Co-applicant can be either of your parents, parents-in-law or spouse.

·         Location in India.

The rate of interest on unsecured loan tends to be higher than that applicable on secured loans. ROI varies depending upon the candidate profile, eligibility, institution, country and other criteria, ranging from 12.50-15%. It takes 3 days to one week for sanctioning of unsecured overseas education loans.

Once you have decided on what course to choose and which foreign university to go for, you can calculate the total budget that is required for the entire overseas education tenure. Both secured and unsecured loans have their positive and negative aspects. Accordingly, you can opt for either of them keeping in mind factors like the bank, loan amount, ROI, parent’s income, moratorium period and the margin. 

Hope this article helped you get an insight into the kinds of education loan.  Wait for more articles on studies abroad loans.