As the doors to international education swing open, parents are faced with crucial decisions that extend beyond the selection of courses and universities. In an era, where global education peaks, parents find themselves steering the complex terrain of financial undertakings to ensure their children access the best learning opportunities worldwide.
Financing education abroad involves a delicate balance of understanding interest rates, collateral requirements, and the duration of the loan. The process demands a thoughtful analysis of margin money, consideration of moratorium periods, meticulous documentation and the need for expediency in a fast-paced admission environment.
So, if you are planning to opt for an education loan in India for study abroad, this guide will help you explore the essentials surrounding education loans and empower parents with the knowledge needed to make informed choices. Thus, it ensures that their children’s academic dreams become a reality without undue financial stress.
Types of Overseas Education Loans
Before delving into the details of overseas education, it’s crucial to understand the fundamental difference between two key types of overseas education loans: Secured and Unsecured.
Secured loans necessitate students to pledge collateral, providing a form of security to the lender. This collateral, which can be in the form of property, fixed deposits, or other assets, serves as a security for the lender against defaults. On the other hand, unsecured loans don’t require applicants to pledge any security. It provides a more straightforward path for individuals who may not have tangible assets to offer as collateral.
Essential Aspects to be Considered For an Overseas Education Loan
Before applying for overseas education loans, it’s vital to consider key factors that lay the foundation for a successful and stress-free financial journey. So, let us unravel these essential considerations.
1. Interest Rate
Interest rate is the direct expense that students encounter. The interest rates associated with overseas education loans depend on various factors like the nature of the course, the university chosen, and the student’s academic track record. Additionally, factors such as credit rating and collateral play a pivotal role in determining interest rates. Consequently, it is advisable for students to enhance their credit rating prior to loan application, ensuring eligibility for the most favorable and cost-effective rates available.
2. Collateral
Due to the prevalence of defaults, public sector banks usually insist on collateral for loans exceeding 7.5 Lakhs. While some private financial institutions provide education loans without collateral or mortgages up to 75 lakhs, it might be a wise choice to pledge collateral to reduce interest costs. Moreover, public sector banks offer secured loans up to 1.5 crores or more depending on the project cost, and private banks give up to 75 lakhs to 1 Cr. Accepted collaterals include properties like houses, plots, or fixed deposits, providing a safety net for both the borrower and the lender.
3. Margin Money
Understanding how much the financial institutions will lend and how much the applicant needs to contribute, is known as margin money. Different lending institutions have varying margin requirements, and they can be influenced by factors such as the loan amount, the location of the study, and the student profile. While public sector banks typically charge margins of 15% to 30% for those studying abroad, private lenders may offer loans with low margins or without any margin requirements, provided the student must have a strong profile.
4. Moratorium Period
Unlike other loans, EMIs for overseas education loans don’t start immediately. There is a moratorium period that extends beyond the course duration, allowing time for the applicant to seek employment. During this period, the parent’s payment of interest can influence the EMI structure, as paying interest during the course and moratorium period results in EMIs based on the principal only. Addressing financial constraints, the RBI introduced an educational loan scheme, mandating a moratorium before repayment. Government banks are obligated to provide a moratorium of up to 12 months, while private sector banks offer a 6-month moratorium for students studying abroad.
5. Repayment Tenure
Overseas education loan tenures typically span 10 to 15 years for amounts exceeding 7.5 lakhs, offering students the flexibility of manageable installments. A lengthier tenure eases EMIs, while a shorter tenure heightens EMIs focusing on shorter interest payment spans. The repayment of the loan amount commences a year after the course completion or six months post-employment with interest accumulating during the study and moratorium periods. Private banks and NBFCs often mandate partial or full interest payments during these periods.
6. Essential Documentation
Documentation for securing an overseas education loan needs to be very accurate. A credit score above 700 is generally considered good, and lenders typically require admission-related documents. If the collateral is involved, documents related to it, such as an original copy of the registered sale deed, copy of the mutation, building permission letter, and tax receipt of the current year need to be submitted. Thorough and accurate documentation is crucial for a smooth loan approval process.
7. Financial Lenders
Before seeking an overseas loan, thorough research is crucial to identify the ideal lender aligning with your needs and profile. Notably, nationalized banks often offer lower interest rates as compared to other financial lenders. There are various schemes that exist, providing students with opportunities for interest rate concessions. Among the prominent lenders are State Bank of India, Union Bank of India, Bank of Maharashtra, Punjab National Bank, Bank of Baroda, Bank of India, ICICI Bank, Axis Bank, and IDFC First Bank. Additionally, NBFCs such as HDFC Credila, Avanse, Incred, and Auxilo, along with international lenders like MPower Finance and Prodigy Finance. It is advisable to take guidance from overseas education loan advisors in selecting the most suitable option for you.
Wrapping Up
Though there are numerous international and Indian government scholarships for studying abroad, due to its highly competitive nature it is always better to go for an overseas education loan and fund your study abroad journey. Thus, Interest rates, collateral, margin money, moratorium period, repayment tenure, and documentation, are all critical considerations that can significantly impact the overall experience of securing an abroad education loan for your child. However, being well-informed and proactive can make this financial journey smoother and more manageable. We hope this article was helpful. Good luck.
