So, you have an ambition to go and study abroad but are wondering where to take a loan without collateral from because the bank is asking you for it, like keeping your own house as security. So, what do you do? You don’t need to worry. There is good news for you.
Certain banks and financial institutions have set aside funds so that students who can’t provide collateral — like a house owned by their parents — can live their dreams of studying abroad. But the funds may have certain limits and come with additional conditions.
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| Students at Columbia University in New York -- Source: Pixabay. |
Here are some key points regarding what is collateral.
Under this, a borrower pledges his close relative’s valuables or property to the lending bank against the amount borrowed. This safeguards the lender’s interest in case the borrower fails to repay the loan.
Sometimes a bank permits a longer tenure for repayment, so as to reduce the equated monthly instalments (EMIs).
The following would usually be considered as collateral:
1. Tangible assets: House, apartment, bungalow, shop and non-agricultural land, among others.
2. Intangible assets: Fixed deposit, life insurance and stocks, for instance.
Generally, property, fixed deposit or life insurance are preferred as collateral.
Q1. What are the different types of education loans?
Education loans comprise secured and unsecured loans. In a secured loan, collateral is needed. But for an unsecured loan, no collateral is required.
Q2. What are the factors taken into account while providing an education loan without collateral?
Two aspects are considered while approving an education loan without collateral: Firstly, the bank or the financial institution tries to see the credit worthiness of the borrower or co-borrower. Credit worthiness means the ability and willingness to pay back a loan.
So, if a bank sees that you have never defaulted on previous loans, your willingness to pay back will be seen as positive.
It will also see your current financial position. If you and your family are well off, your ability to pay back will also be considered positive. Also, your academic merit could be taken into account.
Secondly, if you have performed well in your studies, the bank will get the impression that you may have a higher chance of landing a job. So, if you are not from a well-off family, you will get loan approval if studies are your forte.
And, if both these factors (financial position and merit) turn out to be positive, your chances of securing a loan without collateral for study abroad are high.
But even if a prospective borrower or his parents do not meet the bank’s minimum criteria on financial worth, a student may still secure a loan.
There are agencies like Leap Scholar or Edu Loans that can help these students secure a non-collateral study loan from a bank or financial institution.
But you have to bear in mind one thing: In an education loan without collateral, the interest rate is higher compared to a loan with collateral.
And, even if the financial position of an applicant or his parents do not meet the bank’s criterion, the loan may be approved but the interest rates turn out to be even higher.
Leap Scholar: Leap Scholar is a platform for students who wish to study abroad. Besides giving a helping hand from the beginning of the application process to the time one sets foot in a new country, it also provides information on scholarships, admission processes, financing and visa.
It has tie-ups with several banks in India and abroad and can get a loan approved for a student at the best rate possible.
Edu Loans: Edu Loans compares between different study abroad bank loans and interest rates to give you the best solutions. It also helps students with visa formalities.
Edu Loans also helps source international loans that come at 3 per cent interest per annum and does not charge any processing fee on loans.
It has tie ups with banks, non-banking financial companies (NBFCs), international funds, US banks as well as investors. It can also give information on various scholarships also. So, Edu Loans can help you tap multiple sources of funding.
These loans may come with a slightly higher rate of interest.
A co-applicant, such as a parent with an income, is required for such a loan.
They may have a shorter tenure for repayment compared to a secured education loan. That means higher EMIs.
Since this loan carries a higher degree of risk compared to those with collateral, they may not be given approval so easily compared with a secured loan.
The borrower may have to give some form of repayment during the time of study.
In unsecured loans (loans without collateral), lesser documentation is required. So, approval time may be much less.
Axis Bank: Axis offers international education loans without collateral up to a whopping Rs 40 lakh (Rs 4 million) and the loan taker has to pay an interest of 11.25-13 per cent. The tenure for this loan is 20 years.
ICICI Bank: ICICI also offers education loans without collateral for up to Rs 40 lakh (Rs 4 million) but there is a rider or condition. It has its own list of programmes and institutes for loan approval. The rate of interest here begins from 10.75 per cent. The loan tenure is between 10 and 12 years for a post-graduate programme.
InCred: This NBFC also gives unsecured education loans up to Rs 40 lakh (Rs 4 million) and meritorious students can get higher amounts. Also, the profile of a borrower or co-borrower can lead to higher funding. Rate of interest at InCred is between 11.75 per cent and 16 per cent and the loan tenure is 10 years.
HDFC Credila also approves unsecured education loans up to Rs 40 lakh (Rs 4 million) at an interest of 12.05 per cent. The borrower has an obligation to repay the loan in 10 years.
Avanse: The NBFC sanctions international education loans without collateral. It provides international education loans without collateral for amounts up to Rs 40 lakh (Rs 4 million) with a loan period of 10 years. If the student’s profile is commendable, adjustments can be made to the loan amount. The rate of interest could be 13-16 per cent.
Auxilo: This is yet another NBFC that provides unsecured education loans of up to Rs 40 lakh (Rs 4 million). It does make exceptions for applicants so far as the maximum loan amount is considered. Rate of interest for the unsecured education loan is anywhere between 12.7 per cent and 18 per cent and the loan tenure is 10 years.
HDFC Bank: For loans up to Rs 7.5
lakh (Rs 750,000) no collateral is needed.
HSBC: Loans up to Rs 5 lakh (Rs
500,000) do not need collateral.
State Bank of India (SBI): For loans
up to Rs 7.5 lakh (Rs 750,000) no collateral is needed.
Punjab and Sind Bank: Up to Rs 4
lakh (Rs 400,000), no collateral is needed.
IDBI Bank: Up to Rs 4 lakh (Rs 400,000) no collateral is needed.
* Please contact the banks for
latest updates
Loan calculation
SCENARIO 1: Rs 1 crore loan @ 11% interest rate
Loan amount: Rs 1 crore (Rs 10 million)
Interest rate: 11 per cent
Duration: 10 years
EMI: Rs 137,750 (Rs 1.38 lakh)
Total payment: Rs 165,30,001 (Rs 1.65 crore or Rs 16.5 million)
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SCENARIO 2: Rs 50 lakh loan @ 11% interest rate
Loan amount: Rs 50 lakh (Rs 5 million)
Interest rate: 11 per cent
Duration: 10 years
EMI: Rs 68,875
Total payment: Rs 82,65,001 (Rs 82.65 lakh or Rs 8.27 million)
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Documents required for loan without collateral:
For students taking study abroad loans without collateral, the funds cover
airfares, tuition fees, living expenses as well as books and study material,
among others. Some documents needed for a hassle-free sanction of loan are:
- KYC documents such as Aadhaar card, PAN card or voter ID
card of applicant and co-applicant/guarantor.
- Marksheets and certificates of Class 10 and 12 as well
as university degrees of applicant.
- SAT, GMAT, GRE, TOEFL or IELTS scores may be required of applicant.
- Admission offer letter from a recognised university
abroad along with the required fees of applicant.
- Bank statement for the last six months of co-applicant or guarantor.
- Copies of passport-size photographs of applicant and
co-applicant or guarantor.
- Guarantor form (may be needed).
- Income proof of guarantor or co-applicant (like salary slip/Form 16 or I-T returns of last three years, among
others).
As mentioned earlier,
the financial standing of a co-applicant or guarantor is very important for obtaining an unsecured
education loan. A co-applicant/guarantor may be salaried or self-employed. Based on the
profile of a co-applicant or guarantor, lenders may or may not seek additional documents.
It is to be noted that
banks prefer to sanction loans for STEM (science, technology, engineering and
mathematics) courses compared to non-STEM courses.
Now, we are seeing a host of financial institutions jumping into this study abroad education loan fray. Maybe in the next few years, study abroad loans without collateral could become much more easier to get.
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