A student loan for study abroad is a great idea to finance your education abroad. Most of the students who apply for overseas education loans are concerned about the repayment of the debt. Their major concern is the timely repayment of loans, or who would pay the loan if something unfortunate happened. It is a general understanding among students that if they fail to pay back the loan, then the burden will fall on their parents, who are their co-applicants.
Here, the education loan guru comes in to break this myth. If any student is taking the study abroad loan and any unfortunate thing happens, then the burden of loan repayment and interest payments will not fall on the co-applicant. The loan can be recovered through education loan insurance to reduce the risk to the lender as well.
About education loan insurance:
Education loan insurance is not a new term, but still, the majority of students are not aware of it. Students without a proper understanding of education loan insurance think that it is mandatory for them to purchase the insurance and that it would be an additional expense for them. A lot of them reconsider their decision due to this reason; however, education loan insurance is totally different from the general picture we have in mind about it. Let’s see why study abroad loan insurance is important.
Why is education loan insurance important?
Financial institutions have made it mandatory to have a co-applicant. This is a mandatory condition for both secured and unsecured loans. Education loan insurance is to ensure that if any unfortunate circumstances arise, then the burden of loan repayment will not fall upon the person who is a co-applicant with us. Thus, education loan insurance is a huge relief for students to protect their parents from any financial burden of repayment. One of the additional benefits of insurance is that it reduces the financial risks of the lenders as well. In the event of misfortune, co-applicants are not liable to pay the entire overseas education loan amount. For students who have retired parents as their co-applicants, they may find it a huge relief.
Is it compulsory to purchase education loan insurance?
Different lenders have different education loan insurance amounts; it varies from lender to lender. Students who are borrowing education loans from a government bank are not required to purchase education loan insurance every time. Government banks have not made it a compulsory condition to purchase the insurance along with study abroad loans. They provide the students with a choice as to whether they wish to acquire education loan abroad insurance or not. One of the main reasons behind this is that government banks take the collateral to lend the loan; due to this, they have low financial risks with collateral-based loans.
In the cases of NBFCs, private banks, and international lenders, it is compulsory to purchase education loan insurance along with unsecured loans. There is a criterion that is a must for every candidate seeking a loan from a private lender. The main reason why NBFCs or other private lenders insist on the purchase of education loan insurance is to reduce their financial risk. Private financial institutions mostly provide unsecured loans, for which they never ask the student for collateral. So, students who are planning to apply for an unsecured education loan abroad must also purchase loan insurance along with it.
Benefits of Purchasing Loan Insurance
Below are certain benefits that students can avail of by purchasing education loan insurance.
How do lenders charge the loan insurance fees?
To better understand the loan insurance term, it is important to understand how much lenders usually charge for loan insurance fees. Different lenders charge different amounts of fees as loan insurance. Government banks generally charge between 0.5% and 1% as loan insurance fees. However, most of the government banks offer loan insurance schemes provided by their in-house loan insurance lenders. As mentioned already, it is not compulsory for students to purchase loan insurance from government banks; it totally depends on their choice.
The process of payment to be followed for education loan insurance
Private banks charge 1% to 1.5% of the total loan amount as insurance fees. However, other lenders, like NBFCs and international lenders, charge insurance fees close to 2% of the total loan amount. It is a mandatory condition for any student taking a loan from an NBFC or private lender to purchase loan insurance.
Once the students have finalised their decision to purchase the education loan for abroad studies from their lenders, they are not required to pay for loan insurance. It will be counted with the loan amount only.
Let’s understand this with the help of an example. Suppose you have taken a loan of 25 lakhs INR, and lenders approve the loan limit as 25.5 lakhs INR instead of 25 lakhs.
Another important aspect of loan insurance fees to keep in mind is that loan insurance remains in direct proportion with loan tenure. This means that the lower or higher the loan tenure, the greater the amount of loan insurance fees to be paid by the borrower.
Conclusion:
An education loan for abroad studies turns out to be the perfect way to finance your study abroad expenses. However, education loan insurance is also available to safeguard co-applicants in case certain unfortunate incidents occur. Education loan insurance keeps an individual covered against unfortunate events.
If an individual is looking for an instant student loan online for studies abroad, contact Education Loan Guru.
By Education Loan Guru
