With the increase in the cost of education for higher studies abroad, education loans have gained much popularity among aspirants. A 4-year undergraduate degree from a top-ranked US university can cost you between INR 35 to 50 Lakhs whereas a 2-year MBA could cost up to INR 50 Lakhs. Apart from tuition fees, the cost of living, accommodation and travel expenses further add to the overall expenses, making it difficult for students to manage their finances for their abroad studies. This is when students look for financial support and education loans come to their rescue.
Education loans, also referred to as student loans, are the best way to cover the financial obligations to study in universities. Right from the tuition fees, living expenses, travel expenses, and examination fees to the equipment costs like laptops are covered in an education loan. These loans also offer tax benefits under Section 80E to the borrower and come with flexible repayment terms. In India, students can avail Overseas Education Loan from Private Banks, Nationalized Banks, NBFCs and International Lenders. The first step of taking a loan is to decide whether to opt for a secured education loan or an unsecured education loan for abroad studies. In this blog, we are going to discuss various parameters like interest rate, moratorium period, repayment duration etc., related to both secured and unsecured education loans that will help you take an informed decision.
The education loans for studying overseas are primarily classified into two categories based on the security provided by the applicant i.e., Secured Education Loan and Unsecured Education Loan. Let us understand these two types of education loans:
Secured Education Loan: As the name suggests, a secured education loan is the type of loan where the borrower offers a tangible or intangible asset (house, fixed deposits, non-agricultural land) to the financial institution against the loan amount. A secured education loan is also referred to as an overseas education loan with collateral.
Unsecured Education Loan: Unsecured Education Loan is a type of loan where the borrower doesn’t need to offer any asset against the loan amount. The term unsecured means the financial institution or the lender has no property to foreclose if the borrower defaults. Unsecured Education Loan is ideal for students who don’t want to pledge their assets.
Let us now compare and understand the difference between a Secured Loan and Unsecured Loan:
| Points of Comparison | Secured Education Loan | Unsecured Education Loan |
| Required Collateral | Property or fixed deposit as security for the loan | Does not require collateral. However, a financial co-applicant may be required. |
| Loan Amount | Higher amount depending on the value of the collateral | Loan amount depends on the co-applicant’s annual income |
| Rate of Interest | Interest rates are low due to the collateral pledged | Interest rates are low due to the collateral pledged |
| Eligibility Criteria | Relaxed as the collateral serves as security | Stringent as the lender must rely on the borrower's creditworthiness and co-applicants financial stability |
| Processing Time | Longer due to documentation, property valuation, and more. | Short due to relaxed requirements |
When it comes to an abroad education loan, there are four categories of lenders available i.e., Public Sector Banks, Private Sector Banks, NBFCs and International Lenders. Let us now do a comparative analysis between different types of education loan lenders:
| Criteria | Public Sector Banks | Private Sector Banks | NBFCs | International Lenders |
| Popular for | Secured loans | Unsecured & Secured Loans | Unsecured Loans | Unsecured without Co-Applicant Loans |
| Lenders | SBI, BOB, BOI, UBI | Axis Bank, ICICI & Yes Bank | HDFC Credila, Avanse, InCred and Auxilo | MPOWER and Prodigy |
| Maximum Loan Amount | 1.5 Cr | 50 Lakhs INR | 75 Lakhs INR | 100,000 USD |
| Rate of Interest | Starting at 9.8% | Starting at 10.85% | Starting at 11.25% | Starting at 11% |
| Financial Co-Applicant Required | No | Yes | Yes | No |
| Processing Time | 3 to 4 weeks | 2 weeks | 8 to 10 days | 5 - 7 days |
| Repayment Tenure | Up to 15 years | Up to 10-12 years | Up to 10 years | Up to 12 years |
| Tax Benefit | Yes | Yes | Only HDFC Credila | No |
Both Secured and Unsecured Overseas Education Loans have their own merits and demerits. That being said, it entirely depends on the needs and preferences of the students as to which loans are the best for their requirements. It is advisable for the students to take certain factors into consideration like loan purpose, credit standing, risk tolerance capacity, repayment terms and fees, while availing an overseas education loan.
If students have suitable collateral against the loan amount, they can opt for a secured education loan as the rate of interest is on the lower side and offers benefits like a higher loan amount depending on the value of the collateral, relaxed eligibility criteria and more. In case the student doesn’t have any collateral to pledge, then they can opt for an unsecured education loan which offers a faster processing time.
However, with Élan Loans, students can make the most informed decision by comparing bids from lenders. We have tie-ups with all the major financial lenders including banks, international lenders, and NBFCs. So, get in touch with our loan experts for complete end-to-end assistance for your Study Abroad education loan process.
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