Planning to fly abroad for higher studies but troubled about the sky-high tuition fees of universities? Well, student loans for studying abroad are the best option for you in this case. Keep reading to get detailed information regarding the different student loan options available to you. Also get to know about education loans without collateral, which is a better way to fund your higher studies abroad.
To get a loan from a lender, you generally have to pledge security which can be anything ranging from house property, fixed deposits, shares, bonds, etc., to take the loan. This is required so that if in case you default on the loan, lenders can recover it by selling the pledged security. The security pledged against a loan is termed collateral.
There are two types of student loans for studying abroad. These are called – Secured Loans and Unsecured Loans.
Unsecured Education Loan Without Collateral
It is a kind of student loan for which the borrower does not have to pledge any security (collateral). This loan is perfect for students who do not have any collateral to offer. However, it should be commemorated that an unsecured education loan has a higher rate of interest as compared to a secured loan and is more difficult to get approved. They also have a shorter repayment period and require certain repayments to be done during the study period too. Also, a minimum parental income is mandatory for this kind of education loan.
Secured Student Loan
A secured education loan is one where the borrower has to offer tangible or intangible security. Security can be anything in the form of immovable property, FDs, LIC insurance, land, etc. A secured loan takes longer for confirmation as the bank has to verify all the documents related to the security being pledged. However, it has lower student loan Interest rates, a longer repayment period, and no repayment during the study period. An education loan without collateral also has higher chances of approval and parental income is not a deciding factor when it comes to approval.
What is collateral In Educational Loan?
Collaterals serve as a valuable assurance in the form of assets that you offer as security to the lender when obtaining an education loan. By pledging physical assets such as personal real estate, home equity, or personal vehicles, you can provide a guarantee for your loan.
In addition to tangible assets, there are various other types of assets that can be utilised to secure an education loan. These include paychecks, cash or savings accounts, investment accounts, paper investments, fine art, jewellery, or collectables. Should you and your cosigner find yourselves unable to repay the education loan, the lender has the right to acquire these assets to compensate for the financial loss they may incur.
By offering collaterals, you are providing the lender with an added layer of security, which allows them to extend the loan to you for your educational pursuits.
Education Loan Without Collateral
Education loans without collateral, also known as unsecured education loans, are a type of loan provided by banks to students without requiring any collateral as security. Unlike traditional loans that require assets such as land, houses, or insurance corpus as collateral, unsecured education loans do not have this requirement. Instead, the loan approval is based on the borrower’s creditworthiness, income potential, and academic performance. In the event of loan repayment default, the lender cannot seize any specific collateral to recover the loan amount.
Don’t you think it’d be great if no collateral is needed for loan amounts of more than 7.5 Lakhs? The good news is that non-banking financial companies (NBFCs) and private lenders can administer collateral-free loans for a higher amount, but the only downside is that the collateral-free loans are sanctioned at a somewhat higher interest rate as compared to education loans taken with collateral. Banks generally need co-applicant details when you apply for a collateral-free loan. Not only this, but banks also ask for the income documents such as salary slips or income-tax returns (ITR) of the co-applicant before sanctioning the education loan.
Which Banks give education loans without collateral for abroad?
Some banks that provide education loan for abroad studies without collateral:
Bank of Baroda
Bank of Baroda provides education loans for abroad studies without collateral through the Baroda Scholar scheme which is given for MBA, MCA, MS, and other notified courses that help with job creation. To get this education loan, the student must have secured admission to the notified university and course. The bank of baroda education loan limit for specified institutes is Rs. 80 lakhs and for non-specified institutes is Rs. 60 lakhs. However, they only provide unsecured loans from 7.5 Lakhs onwards.
Avanse education
Avanse education loan for studying abroad is composed keeping all the student requirements in mind. The Avanse education loan for studies abroad covers 1,626 universities, 1,262 colleges, and more than 6,000 courses across cities in 44 countries. They provide various kinds of loans such as pre-visa disbursement loans, pre-admission loans, bridge loans, fast-track loans, score-based benefits, and safeguard that the applicant faces no financial issues while studying abroad in order to uplift their career to the next level. Avanse provides both collateral and non-collateral loans based on the student’s profile with no defined limit on the loan amount. They provide loans maximum up to 50 Lakhs.
SBI Education Loan
Being the country’s leading nationalised lender, SBI provides Global Ed-vantage and education loans without collateral. For overseas education, SBI mainly offers education loans with collateral. Unsecured loans are loans without collateral that are available but only for the best and most well-known colleges, and that too up to ₹ 7.5 lakhs only.
ICICI Bank
ICICI Bank provides Unsecured loans for studying abroad in leading global Universities. They have categorised Universities as A1/A2/A3/A4. They provide fixed interest rates between 10% to 11%. The university list is more global compared to its peers. ICICI bank has committed RMs from each region and they look to provide you home service.
HDFC Credila Education Loan
Along with the tuition fee of the University, Up to 100% of other expenses incorporating living and hostel expenses, travelling, examination fees, library fees, purchase of books, passage money for studies, and purchase of laptops are considered mandatory for the completion of the course as decided by HDFC Credila. Travel fare is restricted to one economy class return ticket between India and the country of study. Co‐applicants need to provide documentary proof to authorize their relationship with the student to the satisfaction of HDFC Credila education loan. The maximum amount of loan they provide is up to 40 Lakhs.
Options for Unsecured Education Loans
Public banks for Unsecured Education Loans: Public banks, such as SBI and BOB, have policies that typically limit unsecured education loans to 7.5 lakhs, regardless of the course or country. However, for select top-tier institutes in India, SBI offers unsecured education loans of up to 40 lakhs.
Private banks for Unsecured Education Loans: Private banks can provide unsecured education loans of up to 1 Cr for studying abroad. However, they usually have a list of approved universities for which they grant such loans. Private banks offer funding for both undergraduate and postgraduate programmes with an interest rate of 10.5% and above. Some top private banks that offer unsecured education loans include Karur Vysya Bank, ICICI Bank, Axis Bank, IDFC First Bank, and HDFC Bank.
NBFCs for Unsecured Education Loans: Non-Banking Financial Companies (NBFCs) are another option for Indian students seeking unsecured education loans. Four NBFCs in India offer student loans without collateral. The loan amount provided by NBFCs depends on the student’s chosen country. For example, they can fund up to 60 lakhs for studying in the USA at an interest rate of 11-12%, 35 lakhs for Canada at 12-13%, 45 lakhs for the UK, 20 lakhs for Germany, and 30 lakhs for Australia at 12-13.5% interest rates.
Foreign lenders: Foreign lenders like Leap Finance and Prodigy Finance can cover up to 80% of the total expenses. However, their interest rates, based on the London Interbank Offered Rate (LIBOR), tend to be higher. When converted to INR, the interest rates range from around 14-15%, making them the most expensive unsecured education loan option.
Process For Education Loan Without Collateral
Step 1: Application Submission: Submit your application form effortlessly either online through a secure portal or in person at our office location.
Step 2: General Documents: Collect the following general documents required for processing your education loan application:
- Recent passport photos
- Proof of residence
- Photo identity card
Step 3: Academic Qualifications: Include copies of your academic qualification certificates, which typically include:
- 10th and 12th-grade mark sheets
- Graduation mark sheets (if applicable)
Step 4: Proof of Admission: Attach the official offer of admission from the university or institution you have been accepted into. This document confirms your admission and may specify a deposit amount required to secure your seat. It may also outline any additional conditions related to the offer.
Step 5: Co-Applicant Details: Provide the last 8 months’ bank statement of the co-applicant, along with their income proof. This information helps to assess the financial standing and repayment capacity.
Step 6: Collateral (if available): If you possess collateral for the loan, please provide the necessary details. However, please note that this step is applicable only if you have collateral available for the loan. We also offer education loans without collateral, making it more accessible for deserving students.
No-Collateral Lending Model: Meaning
The no-collateral lending model relies on the borrower’s future income and the cosigner’s creditworthiness. These loans are only granted to applicants and cosigners with good credit history and the necessary academic and professional qualifications to succeed after their master’s programme. These loans are specifically designed for individuals who are pursuing upskilling opportunities to enhance their professional prospects. By considering the borrower’s potential future income, lenders aim to ensure that the loan repayment can be comfortably managed once the borrower completes their master’s programme and enters the workforce.
Since these loans do not require any collateral, they generally come with higher interest rates compared to traditional secured loans. However, reputable lenders with robust credit evaluation systems and strong financial structures have the ability to offer more competitive interest rates to borrowers.
Eligibility Criteria For An Abroad Education Loan Without Collateral
Eligibility criteria for an unsecured education loan without collateral are based on various factors that assess the applicant’s academic profile, financial stability, chosen course and country, and the university they plan to attend. Here are the key factors considered by lenders:
- Academic Profile: The applicant’s academic performance is an important aspect to determine their employability potential. A minimum of 60% in 10th, 12th, and degree is typically required. Students with more than 3 backlogs may not qualify for an unsecured education loan.
- Financial Co-Applicant: The income and credit score of the financial co-applicant play a crucial role in the loan approval process. Lenders rely on the co-applicant’s financial stability to ensure repayment in case the student is unable to repay the loan.
- Chosen Course/Degree: Lenders generally prefer courses in STEM disciplines (Science, Technology, Engineering, and Mathematics) over other courses like Public Policy or Aviation. However, courses such as PhD, MBBS, Theology, and tailoring may not be eligible for unsecured loans.
- Country of Study: Major study-abroad destinations such as the US, UK, Canada, Australia, Ireland, and Germany are more likely to be favoured by lenders for unsecured education loans. However, there may be scepticism regarding lesser-known countries like China or Ukraine when it comes to offering loans without collateral.
- University Selection: Private banks may have a specific list of approved universities for which they provide unsecured loans. It’s essential to check if the university you plan to attend is on their approved list.
If you are unable to opt for an unsecured education loan, there are alternative options available. UniCreds is a reputable platform that specialises in connecting students with suitable financial partners. We have partnered with 15+ financial institutions to assist with financing students’ expenses abroad. UniCreds provides a seamless and paperless process for securing an education loan, ensuring a convenient experience.
Please note that eligibility criteria may vary between lenders and it’s always advisable to check with specific financial institutions or consult UniCreds for personalised assistance.
Documents Required For An Unsecured Education Loan
To obtain an unsecured education loan for your studies abroad, you can expect coverage for various expenses such as flight fare, tuition fees, living expenses, and study materials. Lenders strive to provide a swift and seamless process for unsecured education loans, requiring you to submit the completed loan application form, accompanied by the following essential documents:
- KYC documents.
- Two passport-size photographs of the applicant and co-applicants.
- Bank statements from the past six months.
- Optional – Guarantor Form.
- Copy of the offer letter from the institute or university, outlining the fee schedule.
- Academic records, including mark sheets and passing certificates for S.S.C., H.S.C, Degree courses, and entrance tests like IELTS, TOEFL, etc.
- Income proof of the co-applicant or borrower, such as salary slips or Form 16.
It’s worth noting that for unsecured education loans, the presence of a financial co-applicant is crucial, particularly their income. The co-applicant can be either salaried or self-employed, and accordingly, lenders may request different documents to verify their financial status.
What are the factors contributing to the rejection of unsecured education loan applications?
In addition to not meeting the lenders’ eligibility criteria, there are certain unofficial guidelines that can lead to the rejection of students’ loan applications.
- Preference for Postgraduate Programmes: Private lenders typically prefer funding postgraduate programmes over undergraduate programmes abroad. This preference is due to the shorter duration of postgraduate courses. While some private lenders do consider funding undergraduate programmes if the university is on their approved list, the chances of approval may initially be lower. Non-Banking Financial Companies (NBFCs), on the other hand, rarely provide funding for undergraduate programmes abroad, except in cases where the student’s financial co-applicant has a significantly high income source. Foreign lenders generally do not fund undergraduate programmes.
- Applicant and Co-applicant Age: Age can be a determining factor for NBFCs. These lenders may be unwilling to offer loans to students older than 27 years. They might consider applicants up to a maximum age of 30 years only if other profile parameters are favourable. Regarding co-applicants, NBFCs generally reject loan applications if the co-applicant is retired (whether a pensioner or not) or is expected to retire within the next three years.
- Fixed Obligation to Income Ratio (FOIR): The FOIR norm is primarily followed by private banks. If the co-applicant fails to meet the FOIR requirements, private banks may reject the loan application. FOIR refers to the ratio between the co-applicant’s current obligations, such as existing EMIs, and their income. If the co-applicant’s obligations exceed their affordability, the loan application may be declined.
It’s important to note that while these factors can contribute to loan application rejections, each lender has their own specific criteria and policies, so the decision may vary among different financial institutions.
Summing up
All banks have varied criteria to look at and provide education loans for abroad studies without Collateral. An education loan without collateral principally depends on the student profile. Banks generally look at providing education loans for abroad studies without collateral to master students who are studying STEM-designated programmes. It is very uncommon for people to provide unsecured loans at the undergraduate level. For any information regarding the education loan and its approval, you should contact UniCreds for the best and hassle-free experience.
FAQs
1. What are the eligibility criteria for an abroad education loan without collateral?
To qualify for a loan for study abroad without collateral, candidates must fulfil several requirements, including a minimum grade point average of 60% required for employment prospects, the income statement of the financial co-applicant, and desired degree program for the candidate.
2. What documents are required for an unsecured education loan?
When you apply for a loan without collateral, banks typically require information on the co-applicants. In addition, before approving the school loan, banks also want income documentation from the co-applicant, such as salary slips or income-tax returns (ITR).
3. Which Banks give education loans without collateral for abroad?
Bank of Baroda, SBI, HDFC Credila, and ICICI are some of the banks that give loans to students without collateral for abroad education.
4. What is the loan procedure for an education loan without collateral?
The documents required to apply for a loan without collateral are your application form for the loan, income proof of the co-applicant, standardised test scores, academic transcripts, address and photo id proof, birth certificate, and bank statements.
