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Abroad Education loan without collateral: In recent times, education loans have emerged as a popular financial aid option in the Indian study abroad market. The increasing accessibility and a growing number of Indian students aspiring to pursue education abroad have contributed to the rising demand for these loans. Particularly appealing is the option of obtaining an education loan for overseas studies without the need for collateral, as it eliminates the requirement of providing any form of security during the loan application process. Many banks in India now offer such education loans without collateral. If you are interested in learning more about this option, this blog is the perfect place to find all the relevant information on abroad education loans without the need for security. Keep reading to get all your questions answered!
Types of Education Loans
Before delving into the specifics of an abroad education loan without collateral, it is essential to familiarize ourselves with the two main categories of education loans available to international students seeking to study abroad:
Collateral Education Loan
As the name implies, a collateral education loan necessitates the borrower to provide collateral (such as a house, property, gold, insurance policies, land, fixed deposits, etc.) as security in order to obtain the desired loan amount.
Non Collateral Education Loan
In contrast to the collateral education loan, an education loan for studying abroad without collateral does not mandate the borrower to pledge any assets as security. Instead, for this type of loan, borrowers need to submit necessary documentation and fulfill specific requirements and eligibility criteria as per the lender’s guidelines.
Education Loan without Collateral
To gain a better understanding of an education loan for studying abroad without collateral, let’s first explore the concept of collateral.
What exactly is collateral?
Collateral refers to an asset that borrowers can use as security against a loan amount. It can take the form of various assets such as property, fixed deposits, agricultural land, gold, and more.
In India, several banks offer study abroad loans without requiring collateral up to a certain specified amount. This facilitates students aspiring to study abroad, enabling them to pursue their education at esteemed universities worldwide. However, it is important to note that such study abroad loans without collateral often come with a slightly higher rate of interest and a shorter repayment period.
Top Lenders for Education Loans without Collateral
Categorizing Lenders for Education Loans without Collateral to Study Abroad
When seeking a loan without collateral for studying abroad, applicants can explore two main categories of lenders: public and private. Some prominent lenders in each category include:
Public Banks
SBI, Bank of Baroda, and others offer loans up to 7.5 Lakhs without collateral.
Private Banks
Axis Bank, ICICI Bank, HDFC, and more provide students with loan amounts up to 40 lakhs without collateral. These banks typically offer a repayment period of around 10-12 years and an interest rate ranging from 10-12%.
NBFCs (Non-Banking Financial Companies)
Incred and Auxilo are examples of NBFCs that offer abroad study loans without collateral up to 40 lakhs. The interest rates for these loans range from 10-18%.
Foreign Lenders
Leap Finance, Prodigy Finance, and others cater to applicants by offering overseas education loans without collateral, covering up to 80% of the total expenses. The interest rates from these lenders generally fall within the range of 10-16%.
Be mindful of the additional cost
Moratorium Period
Public banks typically offer a moratorium period that extends from the students’ course duration plus 6 months to 12 months. During this period, students have the option to skip interest payments on the disbursed amount. However, private lenders do not provide a no-payment moratorium period. Students are required to pay either partial or full interest during their moratorium period, and the EMIs start after this period.
Processing Fee
Public banks do not charge any processing fee for unsecured education loans. In contrast, private banks levy a processing fee, which can be up to 1% on the loan amount plus GST. For some private lenders, the processing fee might be a flat amount, such as 15,000 INR plus GST. NBFCs charge a processing fee ranging from 1% to 1.5% plus GST on the loan amount, while foreign lenders have a minimum processing fee of 2% plus GST on the loan amount.
Loan Insurance
Having loan insurance is not mandatory with public banks, but it is compulsory when dealing with private lenders. Private banks usually charge 1% to 1.5% of the loan amount for loan insurance, whereas NBFCs may charge 2% or more of the loan amount for the same.
It’s important to note that the processing fees and loan insurance are negotiable with private lenders. However, when students approach these lenders directly, they may end up paying more than expected.
Eligibility criteria for an abroad education loan without collateral
- Academic Profile: The applicant’s academic profile plays a crucial role in assessing their “Employability Potential.” Generally, a minimum of 60% in 10th, 12th, and degree examinations is required. Additionally, students with more than three backlogs may not qualify for an unsecured education loan.
- Financial Co-Applicant’s Income and CIBIL Score: The financial co-applicant’s income and CIBIL score are significant determinants for an unsecured education loan. Since there is no collateral involved, lenders rely on the co-applicant’s financial stability to ensure loan repayment if the student is unable to do so.
- Course/ Degree Selection: Lenders prefer courses in STEM disciplines at the undergraduate and postgraduate level over courses like Public Policy or Aviation. However, certain courses such as Ph.D., MBBS, Theology, and tailoring may not be favored for unsecured loans.
- Choice of Country: The country where the student plans to study also affects eligibility. Lenders typically focus on popular study-abroad destinations like the US, UK, Canada, Australia, Ireland, and Germany. However, they may be cautious about offering unsecured loans for lesser-known countries such as China or Ukraine.
- University Selection: Private banks often have a predefined list of universities for which they approve unsecured education loans. This means that students should check whether their chosen university is on the bank’s approved list before applying for the loan.
Documents required for an unsecured education loan
Obtaining an education loan for studying abroad without collateral can cover various expenses, including flight fare, tuition fees, living expenses, study materials, and more. To secure such loans in a quick and hassle-free manner, applicants need to submit the following documents along with the filled loan application form:
- KYC documents
- Two passport-size photographs of the applicant and co-applicants
- Bank Statement of the last 6 months
- Optional – Guarantor Form
- Copy of the offer letter from the Institute/ university, along with the fees schedule
- Mark sheets/ passing certificates of S.S.C., H.S.C., Degree courses, and entrance tests (e.g., IELTS, TOEFL, etc.)
- Income proof of the guarantor or co-applicant/borrower (e.g., salary slips/Form 16)
Why Unsecured Education Loan Applications Get Rejected?
Aside from not meeting the explicit eligibility criteria set by lenders, there are some unwritten rules that can lead to the rejection of students’ loan applications.
- Undergraduate Program Funding: Private lenders may fund an undergraduate program abroad if the university is on their approved list. However, they often prefer funding postgraduate programs due to their shorter duration. NBFCs, on the other hand, rarely provide funding for undergraduate programs unless the financial co-applicant has an exceptionally strong income source. Foreign lenders typically do not fund undergraduate programs at all.
- Age of the Applicant and Co-Applicant: Age is a crucial factor for NBFCs. Applicants older than 27 years may face challenges in obtaining loans from NBFCs, although some may consider applicants up to 30 years if other profile parameters are favorable. As for the co-applicant, NBFCs reject loan applications if the co-applicant is either retired or about to retire within the next 3 years.
- Fixed Obligation to Income Ratio (FOIR): The FOIR norm is predominantly followed by private banks. If the co-applicant does not meet the FOIR requirement, which means their current obligations (EMIs, etc.) exceed their capacity to afford them, the private bank may reject the loan application.
Understanding these underlying factors can help applicants make more informed decisions and improve their chances of obtaining an unsecured education loan successfully.
By reading this article, we believe you now have a comprehensive understanding of Abroad Education loans without collateral. For more informative content like this, feel free to follow freshernsow.com.