Overseas Education Loan Terminologies: Highlights, Description & More

• Overseas Education Loan Terminologies Highlights

• Benefits of Understanding Overseas Education Loan Terminologies

• Terms Related to Types of Overseas Education Loan

• Terms Related to Overseas Education Loan Interest Rate

• Terms Related to Overseas Education Loan Eligibility & Documentation

• Terms Related to Overseas Education Loan Processing & Disbursement

• Terms Related to Overseas Education Loan Repayment

• Overseas Education Loan Terminologies FAQs

Category

Terms

                Kinds of Loans

• Collateral/Secured Loan

• Collateral Free/Unsecured Loan

                    Interest Rate

• Floating Interest Rate

• Fixed Interest Rate

• Base Interest Rate/MCLR/RLLR

• Spread/Margin

• APR (Annual Percentage Rate)

• Simple Interest

• Partial Interest

• Compound Interest

         Eligibility & Documentation

• Loan Eligibility

• Collateral

• LTV (Loan-to-Value Ratio)

• Credit Score (CIBIL Score)

• Co-applicant/Co-signer

• KYC Documents

• Margin Money Proof

• Offer Letter/I-20

       Processing & Disbursement

• Loan Sanction Letter

• Processing Fee

• Loan Margin

• Disbursement

• Pre-Visa Disbursement

• Post-Visa Disbursement

• Tranche / Partial Disbursement

• Disbursement Letter

• Conversion Rate (Forex)

• Loan Top-Up

                      Repayment

• Moratorium Period

• EMI(Equated Monthly Installment)

• Repayment Tenure

• Prepayment

• Prepayment Charges

• Grace Period

• Amortization Schedule

• Co-applicant / Co-signer

• Penalty Interest / Late Fee

• Deferment Period

• Loan Waiver Loan

• Write-off

Secured

Unsecured

Secured overseas education loans, often called collateralized loans, require the borrower to pledge an asset as security to the lender.

This collateral can be either tangible, such as property or land, or intangible, like fixed deposits (FDs), life insurance policies, or government bonds.

These loans generally come with lower interest rates and higher approval chances since the lender’s risk is minimized through the pledged asset.

Unsecured overseas education loans, also known as education loans without collateral, do not require any assets to be pledged.

Instead, the approval is based on factors like the co-applicant’s income, credit score, academic profile, chosen course, university, and study destination.

While these loans provide flexibility to students without significant assets, they may carry slightly higher interest rates to offset the lender’s risk.

             Terms

                                                         Description

Base Interest Rate/MCLR/RLLR

The base interest rate (or benchmark rate) is the minimum rate set by a lender, below which loans are not offered. MCLR (Marginal Cost of Funds-based Lending Rate) and RLLR (Repo Linked Lending Rate) are examples used by banks to calculate loan interest.

Floating Interest Rate

A floating or variable interest rate changes periodically based on market trends or benchmark rates such as the MCLR or RLLR. While it may decrease when market rates drop, it can also rise, affecting your overall repayment amount.

Floating Interest Rate

A floating or variable interest rate changes periodically based on market trends or benchmark rates such as the MCLR or RLLR. While it may decrease when market rates drop, it can also rise, affecting your overall repayment amount.

Fixed Interest Rate

A fixed interest rate remains constant throughout the loan tenure, offering stability in your EMI payments. This is ideal for students and families who prefer predictable monthly expenses.

Spread/Margin

The spread or margin is an additional percentage charged over the base rate, depending on the borrower’s credit profile, course, or university. It essentially decides how much higher your final rate is compared to the base rate.

APR (Annual Percentage Rate)

The APR represents the total yearly cost of your loan, including both interest and additional charges like processing fees. It provides a clearer picture of the actual borrowing cost.

Simple Interest

Simple interest is calculated only on the principal loan amount. Many lenders use this method during the moratorium period. This means you pay interest only on the disbursed amount until repayment begins.

Partial Interest

Partial interest is charged when you pay interest only on a portion of your loan amount during a specific period. Many lenders apply this when your loan is disbursed in instalments, meaning you pay interest only on the amount released, not the entire approved loan.

Compound Interest

Compound interest is calculated on the principal amount and the accumulated interest. In this method, interest keeps adding to your balance over time, which can increase the total repayment amount if not managed carefully. This is commonly applied after your repayment period begins.

            Terms

                                                      Description

Loan Eligibility

This refers to the borrower’s ability to qualify for a loan based on factors such as Academic Background, Chosen Course, University Ranking, Co-Applicant’s Income, and Repayment Capacity. Each lender has its own set of eligibility criteria for approving education loans.

Collateral

Collateral is an asset pledged to the lender as security for a loan. It can include Property, Fixed Deposits, Government Bonds, or Insurance Policies. In case of default, the lender can recover the dues by liquidating the pledged asset.

Offer Letter/I-20

The Offer Letter or the I-20 form (for the USA) is an official document from the university confirming admission. Lenders require this document to verify the Course, Duration, and Tuition Fees before disbursing the loan.

LTV (Loan-to-Value Ratio)

The Loan-to-Value ratio determines the percentage of the collateral’s value that a lender is willing to finance. For instance, if your collateral is worth Rs. 50 lakh and the LTV is 80%, you can get a loan of up to Rs. 40 lakh.

Credit Score (CIBIL Score)

A credit score reflects the borrower’s and co-applicant’s repayment history and financial reliability. A higher score (above 700) increases the chances of loan approval and helps in securing better interest rates.

Co-applicant/Co-signer

A co-applicant or co-signer is a financially stable individual, often a parent or guardian, who shares responsibility for loan repayment. Their income and credit history play a crucial role in determining loan approval, especially for unsecured loans.

KYC Documents

Know Your Customer (KYC) documents verify the identity and address of both the student and the co-applicant. These include PAN card, Aadhaar Card, Passport, and Utility bills. They are mandatory for all education loan applications.

             Terms

                                                      Description

Loan Sanction Letter

An official document issued by the lender confirming loan approval, specifying the sanctioned amount, interest rate, repayment terms, and other conditions. It acts as proof of financial support during the visa process.

Processing Fee

A one-time, non-refundable charge levied by the lender to cover administrative costs for processing the loan application. This fee usually ranges between 0.5% to 2% of the loan amount.

Loan Margin

The percentage of the total education cost that the borrower must contribute from personal funds. For example, if the loan covers 90% of expenses, the remaining 10% is the margin.

Disbursement

The process through which the approved loan amount is released by the lender. It can be paid directly to the university or, in some cases, to the borrower’s account based on the lender’s policy.

Pre-Visa Disbursement

This refers to the partial release of loan funds before a student obtains their visa. It is usually done to pay for initial expenses such as university deposits, tuition fees, or proof of funds required for visa approval.

Post-Visa Disbursement

Once your student visa is approved, the remaining loan amount is released. This disbursement usually covers tuition fees, living expenses, or other education-related costs as per the lender’s schedule and the university’s requirements.

Tranche/Partial Disbursement

Loans for overseas education are often released in tranches or parts, aligned with each academic term or university requirement, rather than as a single lump sum.

Disbursement Letter

A document issued by the lender confirming that the loan amount has been disbursed. It contains details such as the amount released, date of disbursement, and recipient account.

Conversion Rate (Forex)

The rate at which Indian Rupees are converted into the foreign currency needed for tuition or living expenses abroad. Fluctuations in exchange rates can affect the total cost of the loan.

Loan Top-Up

An additional amount can be borrowed on top of the existing education loan if the initial sanctioned amount doesn’t cover the entire course or if new financial needs arise.

           Terms

                                                       Description

Moratorium Period

The moratorium period is a relaxation phase during which you are not required to start repaying your loan. It usually includes your course duration plus 6–12 months after graduation, giving you time to secure employment before starting EMI payments.

EMI (Equated Monthly Installment)

The fixed monthly amount you repay to the lender, which includes both principal and interest components. The EMI is determined based on the loan amount, interest rate, and repayment tenure.

Repayment Tenure

This refers to the total time period given by the lender to repay your education loan. It ranges from 10 to 15 years, depending on the lender’s policy and loan type.

Prepayment

When a borrower pays a part or the entire outstanding loan amount before the scheduled end of the repayment period, to reduces interest costs.

Prepayment Charges

Some lenders impose a small fee if you repay your loan before the agreed tenure. These charges compensate the lender for the interest they would have earned over time.

Grace Period

A short period after your moratorium ends, during which lenders do not impose penalties for missed payments, offering a buffer to organize your finances before starting EMI payments.

Amortization Schedule

A detailed table provided by the lender showing the breakdown of each EMI into its principal and interest components throughout the repayment tenure.

Co-applicant/Co-signer

A person, usually a parent or guardian, who shares the responsibility of loan repayment. Their financial stability and credit score play a key role in loan approval.

Penalty Interest/Late Fee

An extra amount is charged if you delay or miss an EMI payment. Timely repayments help you avoid these charges and maintain a good credit score.

Deferment Period

The deferment period is an approved extension during which you can temporarily postpone your loan repayments due to valid reasons such as unemployment or further studies. Interest may still accrue during this time, depending on the lender’s policy.

Loan Waiver

A loan waiver refers to the complete or partial cancellation of your outstanding loan amount, usually granted under specific circumstances such as financial hardship or government-announced relief schemes.

Loan Write-off

A loan write-off occurs when the lender removes the unpaid loan from its balance sheet due to non-repayment, often after all recovery measures fail. However, the borrower is still legally responsible for repaying the amount unless officially waived.