Exploring the Hidden Charges of Overseas Education Loan

In recent years, there has been a surge in the number of students seeking higher education abroad. Many students, however, face financial constraints that prevent them from fulfilling their dream of studying overseas. To overcome this hurdle, students often resort to education loans, which are designed to help them fund their studies abroad. 

However, before you sign on the dotted line, it is important to understand that education loans can come with hidden charges that can significantly impact the overall cost. These charges can be difficult to spot and can lead to unexpected expenses that can cause financial strain on students and their families.

In this article, we will explore the 11 hidden charges in Education Loan For Higher Studies Abroad that you must know about. By understanding these charges, students can make informed decisions and plan their finances, accordingly, ensuring a smoother and more successful academic journey.

11 Hidden Charges in Overseas Education Loans

1. Processing Fees

One of the most common hidden charges associated with an overseas education loan is the processing fee. The processing fee is a charge levied by the bank or financial institution for processing the loan application. The fee varies from bank to bank and can be as high as 2% of the loan amount along with the GST. It is essential to clarify the processing fee with the bank before applying for an education loan.

2. Prepayment Charges

Many students prefer to prepay their education loan to reduce their debt burden. However, prepayment charges are levied by some banks for making early payments. This charge can be as high as 5% of the outstanding loan amount. It is important to check with the bank regarding the prepayment charges before opting for an education loan. But in terms of Unsecured Overseas Education Loan, you need to check with your lender may it be Private bank, NBFCs or International Lender about the prepayment charges.

3. Margin Money

Margin money is the percentage of the loan amount that the borrower has to pay upfront. This percentage can vary from bank to bank and can range from 5% to 15% of the loan amount. Margin money is an essential factor to consider before opting for an education loan, as it determines the amount of money the student will have to pay from their pocket. Also before sanctioning you need to clarify the loan margin from your lender, as if in terms of Secured Overseas education loan, the property rate may vary and thus the loan margin will change as well. 

4. Currency Conversion Charges

If the student is taking an education loan in a foreign currency, the bank may levy currency conversion charges. These charges can range from 1% to 5%. It is essential to clarify the currency conversion charges with the bank before applying for an education loan. For example – Let’s say, you have taken a loan for your studies in the USA of INR 40 Lacs. At the time of sanction of the loan the Currency conversion rate was $1 = INR 80, but at the time of disbursement the Currency conversion rate increased to $1 = INR 82, then the remittance will be done as per current date. 

5. Insurance Charges

Some banks may require the borrower to take an insurance policy to cover the education loan. The insurance charges can range from 1% to 2% of the loan amount and are usually a one-time payment. It is essential to clarify the insurance charges with the bank before opting for an education loan. 

Note – If the student has taken a secured loan, then the property would also get insured and you will accrue those charges as well.

6. Late Payment Charges

Late payment charges are levied by banks if the borrower fails to make the EMI payment on time. These charges can range from 1% to 3% of the EMI amount and can significantly increase the cost of borrowing. It is important to ensure that the EMI payments are made on time to avoid late payment charges.

7. Moratorium Period Interest

As per RBI norms paying simple interest during the moratorium period is waived, which makes the students to focus on their studies carefree. But post moratorium period, some banks will calculate and charge Simple interest and some banks do compound interest. This interest will get accumulated into your principal amount and accordingly you will get your EMIs. You must clarify about how your lender will calculate the interest, as it can put a significant impact on your repayment amount. 

8. Legal Charges

Legal charges are levied by banks for the legal work involved in processing the education loan application. These charges are INR 5,000 and above and are usually a one-time payment.

9. Disbursement Charges

Disbursement charges are levied by banks for disbursing the loan amount to the University's account. At present, remittances made for international studies using an education loan are subject to a 0.5% TCS (Tax Collected at Source) on any amount sent above Rs 7 lakh. However, if the remittance is made without using a loan, a higher TCS of 5% is imposed on the portion of the amount that exceeds Rs 7 lakh. It is essential to clarify the disbursement charges with the bank before applying for an education loan.

10. Renewal Charges

If the education loan is not repaid on time or if the borrower seeks an extension of the loan tenure or if the borrower wants another loan for further studies, some banks may charge renewal charges. These charges can range from 0.5% to 1% of the loan amount and can significantly increase the cost of borrowing. Clarification of such charges is a must. 

One of the most negligent yet costly hidden charges is of Mortgage Process while taking a secured loan.

So, let us talk about that ahead.

11. Mortgage Process in terms of Secured Loan

When it comes to hidden charges, this particular one is something that will cost you a lot. In Secured Overseas Education loan, one must provide a collateral. Collateral can be in a form of property, land, etc. Thus, for such mortgage there is a procedure that the application must follow to get the collateral paperwork done. The charges that the applicant has to pay to get the paperwork done is hefty. 

Some banks accept equity mortgage, and some banks take registered mortgage only. In terms of equity the charges of mortgage process will be around INR 35,000 but in terms of a registered mortgage the charges can go up till INR 1,00,000.

You should also know that some banks ask to buy their shares if you are taking a loan from their bank. 

Calculation of Stamp Duty charges for Most Banks is done as per the following standards - 

Equitable mortgage Stamp duty

• 0.1% of loan amount below Rs. 5 lakhs.
• 0.3% of loan amount above Rs. 5 lakhs.

Notice of intimation charges

• Registration fee - 0.5% of loan amount max to Rs.15000/- (irrespective of loan amount)

For example, let’s say you got your Loan Sanctioned from any Nationalized bank of roughly INR 32,00,000, then the following table consists of the approximate Mortgage processing charges you will have to pay.

The above given charges are on the basis of the loan amount sanctioned and it can differ depending on the city, mortgage property valuation etc.

Taking an education loan for overseas education can be an expensive affair, and students must be aware of the hidden charges associated with it. It is essential to do thorough research, compare different banks, and clarify all the charges before applying for an education loan or you can approach ÉLAN loans to do it for it. 

ÉLAN Loans have assisted more than 20,000 study abroad aspirant to not let the financing be a hurdle in their overseas education dream.