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?
Well, the answer is easy! Pick the right study abroad loan option that suits your profile correctly. So, what are the available loan options for students seeking to study abroad?
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-applicants 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.
What is Collateral Security for Education Loan?
Collateral for education loans can take the form of either tangible or intangible assets. Tangible assets include properties such as constructed homes, flats, apartments, and non-agricultural land. On the other hand, non-tangible assets can include insurance policies and fixed deposits. It is important to note that the specific type of asset accepted as collateral may differ depending on the lender’s policies and requirements.
Which Education Loan Is Better? Secured Or Unsecured Loans
There are two options available when it comes to education loans. Firstly, you can choose a non-collateral education loan, which does not require any collateral to be pledged. Alternatively, you have the option to opt for a secured education loan by providing collateral. Opting for a secured loan often brings several advantages, including lower interest rates, the possibility of obtaining larger loan amounts, and more flexible loan terms. This can be beneficial for students seeking a more favourable overall loan offer. It is important to carefully consider your individual circumstances and preferences before making a decision between these two loan options.
Secured Vs Unsecured Loans: Which Is Better?
|Point of Comparison
|Secured Education Loan
|Unsecured Education Loan
|Secured education loans are backed by an asset provided by the borrower as security until the loan is repaid.
|Unsecured education loans do not require any collateral and are approved based on the borrower’s creditworthiness.
|The processing duration for secured loans is typically longer compared to unsecured loans.
|Unsecured loans require minimal paperwork and are processed quickly.
|Secured loans generally have lower interest rates since they are supported by collateral.
|Unsecured loans tend to have higher interest rates due to the increased risk for the lender.
|Secured loans offer longer repayment tenure, allowing the loan amount to be spread over smaller instalments.
|Unsecured loans provide shorter repayment tenure, helping to save on interest costs in the long run.
|Need for a Co-applicant
|Secured loans do not require a co-applicant, only suitable collateral.
|Unsecured loans require a co-applicant as their income plays a vital role in determining the borrower’s repayment capacity.
1. What are the rules for education loans?
The repayment period for the loan is set at 5-7 years, which begins after the commencement of repayment. In cases where the student is unable to complete the course within the designated timeframe, an extension of up to 2 years may be granted for the completion of the course.
2. Can we take an education loan two times?
Certainly, it is possible to obtain a second education loan, given that you fulfil the requirements for the second loan. You have the flexibility to choose whether you would like to obtain the loan from the same bank where you previously obtained your graduation loan or explore options with a different lender.
3. What is the limitation of an education loan?
Banks conduct a thorough evaluation of the academic record of the candidate, expecting a consistently strong performance throughout the course to ensure timely repayment of the loan. It should be noted that educational loans typically carry a relatively high-interest rate.
4. How many days are required to sanction an education loan?
It takes 7 working days to sanction a student loan.
5. What happens if an education loan is not paid?
In the event of non-payment of an education loan in India, the lender will initiate a series of notices to both the borrower and the guarantor. Failure to respond or take necessary action will result in loan default, significantly impacting your credit score. As a consequence, obtaining any future loans may become challenging for an extended period of time.