Every year, nearly thousands of students from India fly to other countries to pursue higher education at foreign universities. Several of them intended to use an abroad education loan to seek financial assistance for educational expenses incurred while studying abroad. However, the number of applications for education loans accepted by banks has fallen precipitously.
Data shows the country’s financial system disbursed education loans amounting to Rs 23,640 crore during 2021–22, while the target set for the country’s 12 PSBs (public sector banks) for the current year is a lower Rs 20,450 crore. This is due to the fact that banks are facing a high number of default cases for education loans. Yet the hope is still alive, and public banks have become flexible in lending loans to students who have worthy educational profiles.
Applying for an education loan abroad is a multitasking process, and aspirants need to be very attentive and careful with every detail. If you do not pay attention to the process, it will be a financial burden in no time.
Not only this, when the time of repayment comes close, you will become stressed, and your future earnings will be at stake. It will also have a negative impact on your CIBIL score, and in case you are thinking of taking another loan in the future (car, personal), it will affect the next loan.
It is obvious that being attentive while taking a foreign education loan is the most important; you cannot afford to be lenient in this matter because it can quickly become a liability rather than a support. However, keeping the following factors in mind will be beneficial:
As an applicant for a loan, the most important thing we all look forward to is the rate of interest. The rate of interest is among the most important factors because it can make loan repayment easy. The estimated rate of interest ranges between 9% and 16% on average. We have listed the average to highest range of interest rates offered by the leading public and private banks, as well as NBFCs offering abroad education loans, below.
Secured Loans:
|
Education loan providers |
Public banks |
Private Banks |
NBFCs |
|
Lenders |
State Bank of India and Bank of Baroda |
Axis Bank and ICICI Bank |
Avanse and Incred |
|
Loan Amount |
4 lakhs to 1.5 crore INR |
10 lakhs to 75 lacs INR |
Up to 1.5 crore INR |
|
Interest Rate |
8% to 12% |
10% to 14% |
11% to 15% |
Unsecured Loans:
|
Education loan providers |
Public banks |
Private Banks |
NBFCs |
|
Lenders |
SBI and BOB |
Axis Bank and ICICI Bank |
Avanse and Incred |
|
Loan Amount |
up to 7.5 lakhs |
10 to 40 lakhs |
Up to 60 lacs |
|
Interest Rate |
8% to 12% |
10% to 14% |
11% to 15% |
If you take a loan of Rs. 40 lakh at a 10% interest rate, your monthly EMI will be Rs. 52,860. If the interest rate is reduced to 2%, your monthly EMI will be Rs. 48,531. This example is proof in and of itself that the rate of interest is detrimental to your future financial payments.
A prepayment penalty is charged by the lender if you repay the loan amount before the end of the repayment term. The bank should communicate with their lender in case they charge such a penalty. For a borrower, early repayment of a loan is a logical decision instead of paying on time. Loan payments, without a doubt, consume a significant portion of our monthly earnings. Thus, it will be a wise decision, but having information about the prepayment penalty will save you from any later misconception.
The type of loan you select will determine the final terms and conditions of the loan agreement. There are two types of education loans.
Secured loan: In this, you tend to pledge the security to the lender in exchange for the loan amount. The collateral provided by the borrower will act as security for the lender in case they fail to pay back the loan dues. Secured loans are much more favorable than unsecured loans; low interest rates and easy repayment options are some of the lucrative benefits of secured education loans.
Unsecured loan: In an unsecured abroad education loan, a borrower is not required to pledge any kind of security. The loan is based on the CIBIL score and the financial ability of the co-applicant. In comparison to secured loans, the interest rates are a bit higher in an unsecured loan due to the lack of security provided to the lender; partial or full interest payments are also a part of an unsecured student loan to study abroad.
The repayment tenure is the time between the loan amount disbursed by the bank and the last payment made by the borrower; the duration of repayment largely depends upon the lender. It's a long-term commitment; it can start at 5 years and go up to 15 years to repay the loan; however, we can see that the longer period is not as beneficial for the borrower because the longer period of loan repayment will require you to pay additional amounts in EMI.
If you take a Rs 20 lakh loan at 8% for 10 years, your monthly payments will be around Rs 24,266 and the total payable amount will be around Rs 29,11,682 (total interest and principal amount). But in a 15-year repayment period, the above-mentioned amount of EMI would become Rs 19,113, but the total payment would be Rs 34,040,348. Thus, it is correct to say that a long duration of repayment would increase the number of total payments, so an applicant must be careful while choosing a loan to save this amount for other future investments.
The repayment period for foreign education loans varies from bank to bank.
|
Lender |
Public banks |
Private banks |
International lender |
NBFCs |
|
Name of Lender |
SBI and Punjab National Bank |
Axis Bank and ICICI Bank |
Mpower and Prodigy Finance |
Incred and Avanse |
|
Repayment Period |
SBI: 15 years PNB: up to 15 years |
From 10 to 15 years |
Up to 10 years |
Up to 10 years |
A moratorium period is a relaxation provided by banks to applicants after the completion of their studies. An extra 6 months or 1 year is given to the borrower to find work or manage the resources for loan repayment; this will prevent them from hustling for a job right after their studies.
In this period of interest, students don’t need to repay the loan. The payments shall start after the moratorium period, and in the meantime, you can find a job or other sources to pay back the education debt on time. However, you may need to pay simple interest during the course period or moratorium, depending on your loan agreement.
The moratorium's duration varies from lender to lender. To provide you with a quick overview of moratorium time, we have listed below banks, NBFCs, and international lenders with the moratorium period they offer in student loans to study abroad.
Processing fees are generally charged by the banks or lenders to bear the operational cost of loan processing. It varies from bank to bank; every lender has a different range of processing fees. The processing fee also depends on the type of loan an applicant is taking. For example, if someone is taking a secured education loan from SBI Bank, you have to pay the amount mentioned by the bank. In cases of unsecured loans, private banks and NBFCs may charge a percentage ranging from 1 to 2.5% of the total loan amount. However, in cases involving public banks, the processing fee is refundable once the loan disbursement is made to the applicant.
All of the aforementioned elements should be taken into account when making an application for an education loan, but you will surely need professional advice to help you in the right direction. While it is true that students are intelligent and do a lot of research on everything related to student loans, there will always be some level of confusion in our thoughts. It is crucial to have professional assistance to prevent this confusion from turning your loan into a burden. We will be there for you every step of the way to make your journey easy and hassle-free.
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By Education Loan Guru
