Education loans are of big help to those students who don’t have the financial capability to finance their education abroad. Every year hundreds of thousands of students go abroad for higher education, but not all have the financial means to fund their education. Even those who want to go overseas, a considerably large chunk don’t have the collateral or a cosigner to back their loan application. This hurdle has in the past restricted many talented students from exploring their full potential.
Now in 2021, we can say the loan scenario has completely changed in the last decade. Many NBFCs and private banks are now providing students access to education loans without collateral for study abroad. Now banks and NBFCs take into account several factors while considering a loan application. Let’s go into a brief analysis of such loan products.
Why do banks ask for collateral?
Amid rising NPAs or Non-Performing Assets, the need to scrutinize loans has been a big concern for banks and other financial institutions. The first thing that one has to keep in mind is that not all loans need collateral, and most banks offer collateral-free loans for amounts up to 7.5 lakhs INR. When the loan amount exceeds the threshold of 7.5 lakhs, then the need for collateral comes up. Well, not anymore, as there are many Fintech companies in the space of abroad education loans that help students in getting a collateral-free loan for amounts exceeding 7.5 lakhs.
The need for collateral arises as there is always an underlying risk of payment failure on the part of the loan applicant. There is always a possibility of having an unforeseen situation that may lead to a collapse in loan repayment. So banks ask for collateral to be assured of getting the loan amount back in any possible case whatsoever.
How have the Fintech companies changed the landscape?
Several banks and NBFCs have tie-ups with Fintech companies that help students get the loan. The fintech companies help the banks in risk assessment by considering factors like the ability to pay back the loan post completion of the course, the prospects of the system for which the applicant wants the loan, the duration of the study, university ranking on globally acceptable ranking agencies like the QS world university rankings, and a lot of other factors.
Considering all the factors, the banks or any other lending institution takes the call on sanctioning a loan. Most fintech companies follow some general steps in taking the final call on forwarding an applicant’s loan request.
Student’s eligibility for the loan is checked
Once a student applies for the loan, the first step is to check whether they are eligible for the loan or not. The eligibility can be restricted by seeing the university’s ranking, the prospects of the course for which the loan is applied, the employability of the student post completion of the degree, etc.
A thorough profile assessment is done
Profile assessment helps fintech companies in directing the applicant to the best lender they can get. The profile assessment is done to help bridge the information gap and ease the work for the lenders, which helps in speeding up the loan process. The profile assessment of borrowers involves checking all the possible scenarios post the disbursal of the loan. The credit scores are limited, the possibility of default on loan is assessed, etc. The whole process is completed in a few days.
Processing of the application
The loan application process is done in a couple of days, and it depends on the type of loan and other factors considered by banks, which is not so relevant for us as it is managed by the Fintech companies you reach for the loans. One of the most significant advantages of getting an unsecured loan sanctioned by an education loan company is that they handle all the hassle of loan processing, and you can get everything done from the comfort of your home.
Once the details are checked, the penultimate step is to submit the documents. Banks and NBFCs seek the original documents for the disbursal of loans. Many fintech companies offer the option of collecting documents from your home. And if the home collection of documents is not available, you will have to physically submit the document at the company’s office.
The final step in the whole process is the disbursal of the loan. Once the loan application is submitted with all the relevant documents, the loan disbursal doesn’t take much time. The confirmation on loan disbursal comes within a week. The process of loan disbursal varies from one bank to another. Few banks will credit the tuition fee in the college account directly without you needing to have such a considerable amount of money in your bank.
While other loans from banks cover the living expenses, usually credit the amount in a prepaid card or transfer the money to your foreign bank account. In other words, both the options are offered by banks, but the tuition fee goes directly into the college account, and the only difference comes when your loan covers your living expenses.
New-age fintech companies like GyanDhan are working in the abroad education loan space and have well-established channels of communications with India’s biggest lenders. Going directly to banks for unsecured loans can be an uphill task as the chances are pretty high that you may not negotiate the rates that such companies will do. They negotiate on interest rates, loan tenure, the loan amount, etc. It’s always advised to take the safest route with an experienced guide, and luckily in contemporary times, these companies are there to help you get an unsecured loan for abroad education.