If you're dreaming of pursuing higher education abroad, but worried about the financial costs, don't worry - you're not alone. Many students face the same challenge. Fortunately, education loans can be a lifesaver for those who don't have the financial means to pay for their education overseas. However, the sad reality is that not all students have the necessary collateral or cosigner to back their loan application. This can be a huge hurdle for talented students, and in the past, has limited their opportunities to explore their full potential. But, with the availability of federal loans and other financial aid options, it's possible to turn your dreams into reality and receive the education you deserve. So let’s understand how this works in detail!
What is an Education Loan without Collateral?
An education loan without collateral is a type of loan that allows a student or their parents to borrow money from a bank or other financial institution to pay for educational expenses, such as tuition fees, books, and living expenses, without having to provide any collateral (e.g., property or assets) as security for the loan. In other words, it is an unsecured loan that is granted based on the borrower's creditworthiness and ability to repay the loan, without requiring any guarantee in the form of an asset. This type of loan can be a good option for students or families who do not have assets to pledge as collateral or who do not want to risk losing their assets if they are unable to repay the loan. Here are 10 tips for student loan management.
Features of Education Loan without Collateral
Some features of Education Loan without Collateral are:
- No collateral: You don't need to put up any collateral or security for this loan, which means you don't have to pledge any of your assets, like property or investments, to get it.
- Loan amount: The amount you can borrow depends on the lender's policies and your creditworthiness. Typically, you can get a loan ranging from a few thousand to several lakhs, depending on the program's duration, institution, and course.
- Interest rate: The interest rate for this loan is generally higher than that of a secured loan, but it varies by lender and depends on your credit score, income, and repayment capacity.
- Purpose of the loan: You can use this loan to cover various educational expenses, including tuition fees, accommodation charges, exam fees, and other related expenses.
- Repayment tenure: The repayment tenure for this loan is usually longer than that of a secured loan, and it can range from 5 to 15 years depending on the lender's policies and your repayment ability.
If you want to know more about whether you should pay off your student loan early, read our blog.
Benefits of Education Loan without Collateral
Some benefits of Education Loans without Collateral are:
- Students can secure a loan of up to Rs. 40-50 lakh for their education without having to provide any collateral or security.
- The loan can be availed before the start of the course.
- During the moratorium period, the borrower is not required to pay any EMI payments.
- The lender provides 100% financing for higher education.
- Students have the option to obtain top-up loans in addition to their education loan.
- The borrower can make prepayments on the loan without incurring any penalty.
- The repayment terms for the loan are flexible and can be tailored to the borrower's needs.
- The loan application process is quick and convenient, with minimal paperwork required.
You can read these eligibility criterias and documents required for Education Loans in detail. To be eligible for an education loan without collateral, students must meet the following requirements:
- The borrower's annual income, after deducting liabilities and expenses, should be at least Rs. 4 lakh.
- The co-applicant must have a minimum CIBIL score of 700.
- For students planning to study in the USA, a GRE score of 300 or higher is required.
- For students planning to study in all other countries, an IELTS score of at least 6 or 6.5 bands is required.
- The applicant's parents must own a residential house to be eligible for the loan.
- The loan cannot be availed for the following programs: pathway courses, foundation courses, integrated courses, UG degree or certificate courses, MBBS degrees, and pilot aviation programs.
Here are the documents that are typically required to apply for an education loan without collateral:
- Mark sheets of the last qualifying examination for school and graduate studies in India and abroad
- Admission letter from the educational institution along with fee structure
- Proof of identity (such as passport, driving licence, PAN card, or Aadhaar card)
- Proof of residence
- Income proof of parents or co-applicants
- Bank statements for the last six months of the borrower and co-applicant
- Passport-sized photographs of the borrower and co-applicant
If the co-applicant is a salaried employee, the following income proof is required:
- Income Tax Returns (ITR)
- Form 16
- Salary slips
- Details of salary account
If the co-applicant is a business owner, the following income proof is required:
- Income Tax Returns (ITR)
- Profit and loss account
- Balance sheet
- Business registration certificate
- Details of business current account
Top Banks offering education loan without collateral
The lenders providing education loans without collateral can be divided into two categories, public banks and private lenders.
- Private lenders offer a larger amount as collateral free education loans. Private banks can offer up to 40 lakhs of student loan without collateral for abroad studies.
- Public banks have a limit of providing student loans without collateral up to 7.5 lakhs, but for top-tier institutes in India, SBI can provide up to 40 lakhs of unsecured education loans.
- NBFCs are another option for Indian students, with four NBFCs in India providing student loans without collateral. The loan amount provided by NBFCs is decided based on the student's choice of country.
- Foreign lenders such as Leap Finance and Prodigy Finance can cover up to 80% of the total expenses with an interest rate ranging from 9.25-16%, which can be converted to INR at a rate of 14-15%, making it the most expensive education loan without collateral. It is important to consider the pros and cons of opting for a student loan without collateral before applying for one.
You can check out some of the best loan providers for students.
Other types of education loan
Apart from education loans without collateral, there are other types of education loans that students can consider:
- Education loans with collateral: These loans require the borrower to provide collateral such as property, fixed deposits, or other assets to secure the loan.
- Federal Student Loans: Federal loans are loans provided by the government to help students pay for education-related expenses. Check out Federal Student Loan Forgiveness and Discharge Guide.
- Skill development loans: These loans are designed to provide financial assistance to individuals who wish to pursue vocational or skill development courses.
- Loan for study abroad: This type of loan is specifically designed to finance education abroad, including tuition fees, living expenses, travel expenses, etc.
- Career development loans: These loans are provided to individuals who want to enhance their career prospects by pursuing advanced courses, professional certification courses, or executive education programs.
- Loans for vocational courses: These loans are specifically designed for individuals who want to pursue vocational courses such as diploma courses, certification programs, or other skill-based courses.
It's important to consider all options available and choose the one collateral free education loan that suits your financial situation and academic goals the best. If you’re confused about how to get a student loan you can read our blog for the same.
Acquiring an education loan without collateral for overseas studies can be a simple process if all the necessary conditions are met and the required documents are provided. We’re sure you must be wondering if you can use student loan to rent an apartment, read our blog to clarify your doubt. As an international student, it is crucial to comprehend the terms and conditions that apply to the chosen collateral free education loan for studying abroad. Here are some smart tips for hassle free student loan repayment that you should check out.