Factors to look at when you apply for education loan abroad


Students who intend to pursue higher education in other countries frequently plan to take out an foreign education loan to fund their studies. An education loan is the ultimate solution to all the woes hindering students' paths. The entire process of applying for an education loan requires guidance, proper management, and an analysis of your needs. The entire process of obtaining an education loan from abroad is divided into phases, and understanding these factors will help students avoid confusion and find better ways to obtain their loans.

The courses a person chooses for further education, their country of residence, and their academic standing will all affect the amount of loan they will receive. These are the relevant factors to consider before applying for an education loan. This is the pre-loan phase, during which students can genuinely decide what they want and where they can apply by meeting the eligibility criteria. Still, after the pre-loan phase, there are certain important factors one should look for while applying for foreign education loan.

Factors that are important to consider while taking an education loan are mentioned below.

Rate of Interest

The key to determining the total amount of loan you have to repay is when the Equated Monthly Instalments (EMI) will start. The policy repo rate hike by the Reserve Bank of India has an immediate impact on the interest rates levied by government banks and also affects the interest rates of private banks. The interest rate charged by the NBFC remains independent. You will find a great disparity among the rates of interest charged by the different banks—government and private banks specifically.

The rate of interest charged by public banks such as the State Bank of India and Bank of Baroda ranges between 8% and 10%–11%. However, private banks charge a rate of interest that starts at 9% and goes up to 13%. Interest rates are never fixed and are subject to change.

Students must check the rate of interest with their banking partner or at the official websites of banks and NBFCs. By comparing the interest rates provided by different banks, you can find the most suitable financing institution for your education loan to study abroad.

Because unsecured loans have no security provisions, interest rates on unsecured loans provided by government banks are higher. In secured loans, the borrower is already mortgaging their property as security against the loan to the bank; that’s the reason why secured education loans can be availed of at low interest rates.

Moratorium Period 

 In education, the term "loan moratorium period" refers to the period of 6 months or 1 year granted by the lender to allow students adequate time to prepare for loan repayment and sort out their finances. A moratorium period is an additional benefit for students because it allows them to take time before repaying their loans. During this period, banks do not charge any extra interest or penalties. This is one of the most beneficial factors a borrower can avail of on an education loan.

Post-Study Work Visa

This is a golden opportunity for students looking for job opportunities in the same country after completing their studies. The UK, USA, and Australia, among many other international countries, provide this opportunity to students so that they can work after completing their education. You will get a year or so for your job as per the provision, so you can stay longer and earn more. Students can use the opportunity to maximize the return on the investment they made with their hard-earned money on college fees.

Secured and Unsecured Loans

There are two types of education loans: secured and unsecured. While applying for secured loans, applicants have to pledge their personal assets, such as residential houses, non-agricultural land, fixed deposits, and LIC bonds. It's important to have precise knowledge of what kind of collateral you can pledge against the loan to avoid further confusion.

Different types of collateral acceptable to the lender:

Any borrower on a secured loan must be knowledgeable about the eligible collateral they can pledge to secure the loan. It's possible that students don't know enough about the collateral that lenders will accept.

  • Immovable Property: As mentioned above, the immovable property you possess, such as your house and non-agricultural land, can be used as collateral. The bank will mortgage the property as security against the loan and lend the money.
  • Liquid Assets: Liquid assets are basically assets that can be easily converted into cash within a short period of time. Liquid assets include things like cash, market securities, and short-term bonds.

In non-collateral loans, the lender would not ask students to pledge any security against the loan, i.e., no collateral is required, which makes the process of loan application less complicated and cuts down on the time and efforts of students. Thus, it is a great option for students who want to get an education loan without mortgaging their property.

Repayment Options

Knowing that repayment is the final step in the loan procedure, the applicant needs to make a methodical plan for the entire loan process.

The moratorium period is an additional relaxation offered in accordance with the real repayment term.

Moratorium Period = course period + 1 year, or 6 months after getting a job.

This extra time is extremely beneficial because it allows you to manage your finances and plan for loan repayment without stressing yourself out during your education.

Processing Time in Loan Disbursement:

Loan disbursement is the final stage in the entire education loan process. Your journey with the education loan is successful once the lender has disbursed the full amount into the borrower's account. In comparison to NBFCs and private lenders, government banks require a longer processing time. Where government banks take 30 to 45 days to process the loan application and complete the entire loan until disbursement, private banks and NBFCs usually take 3–10 working days. However, students falling short of time can look for education loans at private banks and NBFCs without being worried.

General Cost and Hidden Cost: 

There are some general charges, such as interest and processing fees, that we usually have to pay on loans. It is best to be aware of some hidden costs that your financing partner may not disclose initially but will charge later on. To avoid misunderstandings during the loan, aspirants must be aware of these costs.

Before applying, you must inquire about all the charges that may be incurred in the education loan process.

Processing Fees on Loan Amount: Along with the rate of interest, you have to pay processing fees on the total amount of the loan. Some banks charge 0.5% to 1% on both secured and unsecured loans based on the sanctioned amount. This is not a hidden fee; generally, banks and other financing institutions make it clear in the early phases of the loan process.

  • Government banks charge Processing fees that range between 0.5% and GST (an estimated figure; please refer to official sources for updated information) largely depend on the banks.
  • Private banks charge between 0.5% and 2.5%, depending on the institution.
  • Processing fees charged by NBFCs vary from 0.5% to 2%.

Hidden Cost

Prepayment Penalty: Prepayment charges are chargeable in cases where the applicant wants to end their loan before the scheduled tenure. The bank can then charge the prepayment penalty to the applicant.

Late Payment Charges: Late payment charges will be payable when you delay your EMI or ROI payment.

Stamp duty: This is the duty charge the bank may ask you to pay for the stamping of certain documents. We are all aware of the long documentation process for loans. Stamp duty is the charge we need to pay to get the stamp on our documents from the concerned authority.

An education loan is a rock-solid support for all your financial needs to study abroad. Keeping the aforementioned factors in mind will aid in avoiding stress and managing things in a systematic and precise manner.

If you have any questions related to an education loan abroad, then contact the Education Loan Guru.

By Education Loan Guru