A Guide To Education Loans Without Collateral 2024

If you're looking for higher education but worried about the costs, then you are not alone! Education loans offer help for those who cannot afford that high amount for their studies abroad. However, not everyone has the required collateral or cosigner, hindering opportunities. Fortunately, loans without collateral and other aids can make your dreams feasible. Let's delve into the ultimate guide to education loans without collateral.

Differences in Education Loans: With Collateral vs Without Collateral

First, let's begin with the fundamentals, which involve contrast between a non-collateral education loan and collateral-free education loan.

What is an Education Loan Without Collateral? 

A student loan without collateral allows scholars or their parents to borrow money from a financial institution, such as a bank to pay for educational expenditures such as tuition, books, and living expenses without providing any collateral (e.g., land or assets) as security for the loan. In other words, it is an unsecured education loan that is provided based on the borrower's creditworthiness and capacity to repay the loan without any asset guarantee. This form of loan may be suitable for students or families who do not have assets to put as collateral or who do not wish to risk losing their property if they are unable to repay the student loan. 

Features of Education Loan Without Collateral

Some features of education loan without collateral are: 

1. 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.

2. 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.

3. 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.

4. 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.

5. 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. 

Benefits of Education Loan Without Collateral

Some benefits of education loan for abroad studies without collateral are:

1. Students can secure a loan of up to Rs. 40-50 lakh for their education without having to provide any collateral or security.

2. The loan can be availed before the start of the course.

3. During the moratorium period, the borrower is not required to pay any EMI payments.

4. The lender provides 100% financing for higher education. 

5. Students have the option to obtain top-up loans in addition to their education loans.

6. Prepayments on the loan are permitted without penalty for the borrower.

7. The loan's repayment terms are variable and may be adapted to the borrower's needs.

8. The loan application process is quick and convenient, with minimal paperwork required.

Eligibility Criteria for Student Loan without Collateral

To be eligible for an student loan without collateral, students must meet the following requirements:

1. The borrower's annual income, after deducting liabilities and expenses, should be at least Rs. 4 lakh.

2. The co-applicant must have a minimum CIBIL score of 700.

3. For students planning to study in the USA, a GRE score of 300 or higher is required.

4. For students planning to study in all other countries, an IELTS score of at least 6 or 6.5 bands is required.

5. The applicant's parents must own a residential house to be eligible for the loan.

6. 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.

Documents Required 

Here's the checklist of papers needed to secure an unsecured education loan:

1. University offer letter indicating tuition fees

2. Academic records

3. Employment verification

4. KYC documents for both applicant and co-applicant

5. Address confirmation along with utility bill

6. Salaried co-applicant's income evidence: ITR, Form 16, Salary slip, Salary account details

7. Business owners' income proof: ITR, Profit & loss statement, Balance sheet, Business registration certificate, Business current account

8. Applicant's savings account particulars.

Top Banks Offering Education Loan Without Collateral

The lenders providing unsecured education loans can be divided into two categories: public banks and private student lenders. 

1. Private lenders offer a larger amount as an unsecured education loan. Private banks can offer up to 40 lakhs of education loan for abroad studies without collateral.

2. Public banks have a limit of providing non-collateral education loans of up to 7.5 lakhs. Still, for top-tier institutes in India, SBI can provide up to 40 lakhs of unsecured education loans. 

3. NBFCs are another option for Indian students, with four NBFCs in India providing education loans without collateral. The loan amount provided by NBFCs is decided based on the student's choice of country. 

4. Some foreign lenders 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 an education loan for abroad studies without collateral before applying for one.

Other Types of Education Loan

Apart from abroad education loan without collateral, there are other types of education loans that students can consider:

1. Education loans with collateral: These loans require the borrower to provide collateral such as property, fixed deposits, or other assets to secure the loan.

2. Federal student loans: Federal loans are loans provided by the government to help students pay for education-related expenses. 

3. Skill development loans: These loans are designed to provide financial assistance to individuals who wish to pursue vocational or skill development courses.

4. Loan for study abroad: This type of loan is specifically designed to finance education abroad, including tuition fees, living expenses, travel expenses, etc.

5. 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.

6. 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.

Hacks to Get Your Unsecured Education Loan Approved to Study Abroad

The cost of studying abroad can be quite high, and many students rely on education loans to finance their studies. Getting an unsecured education loan approved can be a daunting task, but with the right hacks, you can increase your chances of success.

1. Research Loan Options

Explore various loan types, eligibility criteria, interest rates, and repayment terms to understand the loan process thoroughly before applying.

2. Boost Your Credit Score

Prioritise paying off debts and credit card bills promptly to improve your credit score, increasing your chances of loan approval.

3. Offer Collateral or Guarantor

Provide collateral like property or enlist a guarantor to mitigate the lender's risk, enhancing approval prospects for your loan application. Alternatively, you can ask a family member or friend to act as a guarantor for your loan.

4. Select a Reliable Lender

Opt for lenders specialising in education loans with favourable terms after comparing interest rates and fees to ensure a smooth borrowing experience.

5. Use Loan Tool/Service

Leverage a loan tool like ForeignAdmits to connect with multiple vendors, compare terms, and streamline the application process, enhancing approval odds.

6. Financial Planning

Create a comprehensive budget covering all study-related expenses to ascertain borrowing needs and repayment capacity accurately.

7. Consider Co-Borrower

Incorporate a co-borrower with a good credit score and income to bolster your loan application, especially if lacking collateral or a guarantor.

8. Apply to Multiple Lenders

Broaden your options by applying to several lenders, ensuring a higher chance of approval while being mindful of timing to safeguard your credit score.

9. Seek Pre-Approval

Get pre-approved to ascertain loan amount and interest rates, aiding in financial planning and strengthening negotiation leverage.

10. Utilise Loan Calculators

Utilise lenders' loan calculators to estimate monthly payments and total interest charges, enabling informed borrowing decisions aligned with your financial capabilities.

Securing an abroad education loan without collateral can be an easy process, provided all the requisite conditions are met, and the necessary documents are furnished. As an international student, it is crucial to comprehend the terms and conditions that apply to the chosen abroad education loan without collateral.