A foreign university’s stamp and the exposure it receives are unparalleled. For your career, both act as a trampoline. International degrees and courses, however, are costly. A degree from the US, including tuition, fees, room, and board, can cost top universities a tonne or even more. This sky-high sum has dramatically increased over the past years, becoming exorbitant, especially for international students. But with the help of secured and unsecured loans, you can get a way to battle your finances.
So, how do you guarantee that in the pool of uncountable applicants, your loan application is not lost? And, how do you make rejection-proof your application?
That’s the subject we are diving into today.
What is a Secured Education Loan?
Public banks, private banks, and NBFCs ask for collateral for loans more significant than those amounts. The so-called secured loans are those education loans that need a guarantee in the form of collateral from the borrower (or co-applicant). Since the bank’s risk is much lower, they have lower interest rates and are easier to get. Why is there a need for security for an education loan? When the loan becomes a Non-Performing Asset, the bank uses it, which occurs when the applicant defaults on repayment.
A tangible or intangible asset may be collateral. All examples of tangible assets are a constructed home, flat or apartment, and non-agricultural land, etc. Examples of non-tangible collateral are insurance contracts and fixed deposits. From lender to lender, the type of asset eligible as collateral varies.
What is an Unsecured Education Loan?
An education loan is called an unsecured loan that does not ask the borrower to promise cover, i.e., collateral is not needed. Besides the non-requirement of collateral, there is another benefit to unsecured education loans. Since the documentation is less complicated, their processing time is rapid.
Since the risk taken by the financial institution is higher, the interest rates are higher for loans without collateral. These loans also demand a co-applicant or co-signer. It is based on the co-applicant’s income and CIBIL scores that the loan is sanctioned.
Which Loan is Better for Education?
Both kinds of education loans have their benefits and shortcomings. That said, for four reasons, if you have the necessary collateral, secured loans are a safer and better alternative:
- They charge a lower interest rate, which, in the long run, saves money. Compared to other lenders’ floating rates, some lenders offer a fixed-rate option throughout the repayment period.
- As a loan, you can get huge sums. Without collateral land, you can’t get such a high amount of loan,
- It’s much longer (and versatile sometimes) the time you get to repay the loan.
- The loan has tax-deductible advantages that can help you save on taxes.
The Pick Between Lenders:
If you are confused between lenders, then in decreasing order, your preference should be:
- Public Bank (lowest rates of interest)
- Private Bank (lower interest rates than NBFCs)
- NBFC (Higher rates than private and public banks)
- International player (Other currency loans, not recommended if you’re getting a loan from any of the three above)
Possible Reasons for Rejection of Loans
Lenders have been suspicious of NPAs, which is why more student loans are being rejected. Strengthen your chances of acceptance by recognizing (and eliminating) the most common reasons for rejection.
For Secured Education Loans
- Incomplete documentation, especially on the collateral, increases the chances of declining your loan.
- The application may be denied if the lender is not happy with the proof of admission to a foreign university or school.
- The likelihood of securing a secured loan is diminished if the collateral provided is inadequate.
For Unsecured Education Loans
- An incompetent university is the number one reason why private banks are refusing unsecured loan applications.
- If the student’s prior academic performance has been weak, an unsecured student loan is more difficult to obtain.
- The co-applicants insufficient income, which demonstrates his inability to pay interest during the moratorium period, is another reason why a lender can refuse a study loan.
- If the co-signer is already paying out other EMIs, the odds of rejection begin to increase.
- A lender can also refuse a loan for collateral-free education if the co-applicants CIBIL score is low.
So, Which One is Better: Secured and Unsecured Loans?
Realistically, it is not inherently good or bad for secured and unsecured loans. Different are they. The most significant thing for you to consider is how you would be impacted by each loan category’s features and benefits.
The benefits of low rates and no penalties can be helpful if you can handle payments on a secured loan like a home equity loan.
On the other hand, consider an unsecured loan if you need a loan but don’t have collateral to give in return for the loan. Just make sure to thoroughly examine your repayment plan to decide whether your estimated revenue will cover your expenditures when you graduate.
For students of all sorts, the field of educational lending is rich with choices. The trick to managing the process is to educate yourself about those choices properly.