Study Abroad Loan Terminologies: 22 Key Terms Every Student Must Know

If you’re planning to study abroad and considering an education loan, you’ll come across terms that look familiar but mean something entirely different in finance.

Misunderstanding important loan terminology could cost you. This blog simplifies the 22 most important study abroad loan terms every international student must know.

From moratorium periods to collateral requirements and repayment schedules, you’ll learn what each term means, how it affects your loan, and why getting it right from day one matters.

Loan Basics

1. Principal

In loan terminology, the principal is the initial amount of money borrowed from a lender, excluding any interest or additional fees. For example, if you borrow ₹5,00,000 to fund your education, that ₹5,00,000 is your principal. Interest is calculated on this amount (or the remaining balance after partial repayments). As you make payments, the principal reduces over time, which also decreases the interest charged in subsequent billing cycles.

2. Interest Rate

The interest rate is the cost of borrowing expressed as a percentage of the principal amount. For education loans, rates can be fixed (stay constant) or floating (change with market rates).

3. Annual Percentage Rate (APR)

The Annual Percentage Rate (APR) represents the total yearly cost of borrowing an education loan, including the nominal interest rate and mandatory fees such as processing charges or insurance costs. APR provides a more accurate picture of the loan’s actual cost, enabling students and parents to compare different lenders effectively when planning study‑abroad financing.

4. Floating Interest Rate

A floating interest rate, also known as a variable interest rate, is an interest rate on an education loan that changes periodically based on market benchmarks such as the repo rate or MCLR (Marginal Cost of Funds Lending Rate). While this can lead to lower EMIs when market rates fall, it also means EMIs may increase if rates rise, making repayment amounts less predictable compared to fixed‑rate loans.

5. Marginal Cost of Funds‑based Lending Rate (MCLR)

MCLR is the internal benchmark rate set by banks in India, determining the minimum interest rate they can charge on loans, including education loans. Floating interest rates on education loans are often linked to the MCLR, meaning repayment amounts can change when this rate is revised.

6. Accrued Interest

Accrued interest is the interest that accumulates on your education loan but has not yet been paid. During the moratorium period (course duration + grace period), this interest continues to build up. It is either paid periodically (simple interest) or added to the principal (compound interest) once repayment begins. Understanding accrued interest is crucial for estimating the total repayment amount for study‑abroad loans.

7. Floating Interest Rate

A floating interest rate, also known as a variable rate, is an interest rate that changes periodically based on market benchmarks like the MCLR or repo rate. While this can lower EMIs when rates fall, it may also increase EMIs when rates rise, making repayment amounts less predictable compared to fixed‑rate loans.

8. Annual Percentage Rate (APR)

The Annual Percentage Rate (APR) represents the total yearly cost of borrowing an education loan, including both the nominal interest rate and mandatory charges such as processing fees or insurance. It provides a comprehensive measure of the loan’s cost, enabling students and parents to compare loan offers more accurately than by interest rate alone.

9. CIBIL Score

The CIBIL score is a three‑digit credit score (ranging from 300 to 900) used in India to evaluate a borrower’s creditworthiness. A higher score (750 and above) improves chances of loan approval and may result in more favourable interest rates for education loans.

Also Read: Credit Score Ranges Explained for Study Abroad Aspirants

Loan Types 

10. Collateral Loan

A collateral loan is an education loan that requires the borrower to pledge tangible assets (such as property) or intangible assets (such as fixed deposits or government bonds) as security. These loans generally offer lower interest rates, higher sanctioned amounts, and longer repayment tenures, making them suitable for students requiring substantial funding for overseas education.

11. Non-Collateral Loan

A non‑collateral loan is an education loan that does not require the borrower to pledge any asset, such as property or fixed deposits, as security. Approval for these loans is primarily based on the student’s academic profile, the reputation of the institution, the chosen course, and the co‑applicant’s income and credit history. While convenient for students without assets to pledge, non‑collateral loans generally have higher interest rates and stricter eligibility criteria compared to collateral loans.

Also Read: Education Loans Without Collateral For Studying Abroad: Guide

Key Parties Involved

12. Guarantor 

A guarantor is an individual who agrees to take responsibility for repaying the education loan if the primary borrower is unable to do so. Lenders typically require a guarantor, particularly for higher education loan amounts, to ensure additional security for the loan. In most cases, a close family member such as a parent or sibling serves as the guarantor.

13. Co-Applicant / Co-Signer 

A co‑applicant, often a parent or guardian, applies jointly with the student for the education loan and shares responsibility for repayment. Their income and credit profile strengthen the loan application, especially for non‑collateral loans where the student may not have an independent credit history.

Loan Structure And Costs

14. Loan Margin 

Loan margin refers to the portion of the total education cost that the borrower must self‑finance, as lenders typically cover only a percentage of the overall expenses. For example, if the total cost of studying abroad is ₹30 lakh and the bank funds 90%, the remaining 10% (₹3 lakh) must be contributed by the student or their family. This requirement varies by lender and the type of loan (secured or unsecured).

Loan Process

15. Loan Disbursement

Loan disbursement is the process by which the approved education loan amount is released to the designated beneficiary, typically the university or, in some cases, the borrower’s account. Disbursement may occur in a lump sum or in multiple instalments aligned with the university’s fee schedule, and is usually done after the borrower submits required documents such as admission letters, fee structures, and visa approvals.

Also Read: Education Loan Disbursement Process in Indian Banks (2025)

16. Pre‑Visa Disbursement

Pre‑visa disbursement refers to the partial release of loan funds before a student’s visa is approved, usually to pay initial tuition deposits or secure accommodation required for visa processing. The remaining amount is typically disbursed after visa approval and confirmation of enrolment.

Repayment Flexibility And Timelines 

17. Moratorium Period

The moratorium period is the time during which a student is not required to make loan repayments, typically covering the course duration plus an additional 6 to 12 months after graduation. While no EMI payments are mandated during this time, interest continues to accrue on the sanctioned amount, which may either be serviced during the moratorium (simple interest payments) or added to the principal for repayment after the period ends.

18. Grace Period

The grace period is the additional time provided after completing the course, during which the borrower is not required to begin repaying the education loan. This period, usually ranging from 6 to 12 months, allows students to secure employment and stabilise their finances before regular EMI payments commence.

19. Deferment Period

The deferment period is the additional time granted by the lender during which the borrower is allowed to temporarily postpone loan repayments without being considered in default. In the context of education loans, deferment is typically provided due to circumstances such as extended course duration, higher studies, or difficulty in securing employment after graduation. While repayments are paused, interest may continue to accrue during this period, depending on the lender’s policy.

20. Amortisation

Amortisation refers to the structured repayment process where each EMI covers both interest and principal. Over time, the interest portion decreases while the principal portion increases, helping you gradually clear the education loan. 

Special Scenarios 

21. Loan Waiver

A loan waiver refers to the cancellation of the borrower’s obligation to repay part or all of the education loan, usually granted under specific conditions or government schemes. For study‑abroad loans, waivers are rare but may be offered in exceptional cases such as scholarships that cover loan repayment, government relief programs, or situations of permanent disability or death of the borrower (often covered by education loan insurance).

22. Loan Write‑Off

A loan write‑off occurs when a lender removes the unpaid loan amount from its balance sheet because it is deemed unrecoverable. In the context of education loans, this does not mean the borrower is absolved of repayment; the liability remains, and recovery efforts (such as legal action or collection processes) may still continue. Write‑offs are usually recorded for accounting purposes and should not be confused with loan waivers or forgiveness schemes.

Grasping the vocabulary of loans empowers you to compare options confidently, negotiate better terms and plan your repayments wisely. Whether you are preparing to study abroad or finance another significant milestone, understanding these concepts ensures you borrow smartly and repay with ease. If you are planning to study abroad and need financial support along the way, UniCreds can help you secure education loans at some of the most competitive interest rates making your journey smoother from start to finish.

FAQs

1. What are the terms of the loan?

The terms of a loan refer to the agreed details between the borrower and lender, such as the principal amount, interest rate, repayment schedule and duration. They also include conditions like fees, penalties, collateral requirements and any special provisions for prepayment or modification.

2. What is a loan term?

A loan term is the total length of time you have to repay a loan, usually expressed in months or years. It determines your monthly payment amount and the total interest you will pay  shorter terms mean higher payments but less interest overall, while longer terms lower payments but increase total interest cost.