Collateral-Based Education Loan for Abroad

By
December 20, 2023

Starting a journey towards international education can be transformative, but it often involves significant financial hurdles. To overcome the gap between your aspirations and available funds, considering education loans is a practical solution. Opting for collateral as security can be a strategic decision, especially when aiming for substantial loan amounts or favorable terms.

Types of Education Loan

Before moving forward, let’s take a quick look at the different types of education loans. There are primarily two categories: secured education loans and unsecured education loans. Secured loans require borrowers to provide collateral as protection for the loan. On the flip side, unsecured education loans do not require collateral from the borrower. However, these loans do necessitate a co-applicant for approval.

What is an Education Loan with Collateral?

For education loans that require collateral, it’s crucial to provide either tangible or intangible security. These secured loans offer higher amounts, reaching up to INR 1.5 crore, along with lower interest rates starting at 8.85%. The interest rates for loans backed by collateral are generally more favorable compared to those without. GyanDhan’s Education Loan Interest and EMI calculator can be used to estimate monthly installments and overall interest. While proof of parental income isn’t mandatory, a strong income can be beneficial. Extended repayment periods are available for education loans with collateral. Some banks, like SBI or BoB, may allow deferred repayment during the study period with accumulating interest. Secured loans may also qualify for tax benefits under Section 80E. GyanDhan provides document pick-up services and connects applicants with bank branch managers or relationship officers.

Collateral-based Loan With SBI

  • SBI foreign education loan offers a range of loan amounts, from INR 7.5 Lakh to INR 1.5 Crore.
  • The variable interest rate is set at 11.15%, with a 0.5% concession for female applicants.
  • A non-refundable processing fee of INR 10,000 + GST is applicable.
  • Margin money requirements vary, with 15% for loan amounts between INR 7.5 Lakh and INR 20 Lakh, and 10% for amounts exceeding INR 20 Lakh.
  • Property evaluation charges, around INR 7,500, may vary depending on the location and specifics of the property.
  • The moratorium period aligns with the course duration, plus an additional 6 months.
  • Repayment tenure allows for an extension of up to 15 years.

Collateral-based Loan with UBI

  • Loan options from Union Bank of India (UBI) consist of a secured choice, expandable up to INR 1.5 crore based on the student’s profile, and an unsecured option with a maximum limit of INR 40 lakh.
  • Interest rates for secured loans by UBI range between 10-10.5%, while unsecured loans carry a fixed rate of 9.8%.
  • A processing fee of INR 5000 is refundable, provided the disbursement occurs within 3 months of sanction.
  • Margin money requirements vary, with 10% for secured loans in listed universities, 15% for those in non-listed universities, and 15% for unsecured loans.
  • The moratorium period aligns with the course duration, plus an additional 12 months.
  • Repayment tenure allows for an extension of up to 15 years.

Eligibility for Collateral-based Loans

  • Possession of all necessary documentation related to the security intended for attachment is a requirement for the applicant.
  • Eligibility criteria state that the applicant, who must be an Indian national, can also be an NRI with an Indian passport, thereby expanding access to education loans.
  • OCI students are eligible for loans exclusively for studies within India due to their non-Indian citizen status.
  • Admission to a recognized institute is imperative, with lenders typically requiring a copy of the acceptance letter along with the loan application.
  • A commendable academic history, supported by relevant mark sheets, is a prerequisite for loan approval.
  • Lenders often consider a favorable CIBIL score as part of the approval process for education loans.

Perks of Collateral-based Loans

Choosing a secured education loan for international studies, where collateral is pledged, presents numerous advantages over an unsecured loan. These benefits encompass a range of aspects, making secured loans an attractive option. First and foremost, opting for a secured loan allows access to a larger loan amount. Lenders are more willing to provide substantial funds when backed by collateral, ensuring ample financial support for your education abroad. Additionally, secured loans typically come with lower interest rates compared to unsecured alternatives. The collateral acts as a form of security, reducing the lender’s risk and leading to cost savings throughout the loan term.

Another notable advantage of secured education loans is the potential for extended repayment terms. These longer periods offer flexibility, easing financial pressure during your study and early career phases. Moreover, collateral-backed loans simplify the approval process, particularly for individuals with limited credit history or lower credit scores. The presence of collateral provides assurance to the lender, thereby increasing the likelihood of loan approval. Additionally, depending on the lender, you may have the flexibility to choose the type of collateral, whether it’s property, investments, or valuable possessions, allowing alignment with your financial situation and preferences. Lastly, responsibly managing a secured loan, including making timely repayments, contributes to building a positive credit history, which can be beneficial for future financial endeavors, such as applying for other loans or credit cards.

In conclusion, secured education loans, exemplified by SBI and UBI, are vital for overcoming financial challenges in studying abroad. With collateral, applicants access larger amounts at favorable rates, extended terms, and higher approval odds, particularly beneficial for those with limited credit history. The flexibility in collateral options and credit-building opportunities adds strategic value, making these loans essential for bridging the gap between educational aspirations and financial realities.