Pursuing higher education in a foreign country is a powerful investment. However, it also comes with a hefty price tag that includes the tuition fees, travel and accommodation costs, and other miscellaneous expenses. With the rising costs of foreign education, many students and parents are turning to education loans for bridging the financial gap.
However, before you jump straight into the application processes for education loans to study abroad, it is important that you first understand what secured and unsecured (collateral-free) education loans are and how they differ from one another. Students who do not wish to or cannot pledge assets, like property or a fixed deposit, as collateral can opt for a collateral-free education. However, when you opt for an education loan without collateral, lenders assess a variety of factors, like your academic record, course selection, country of study, and most importantly, the financial background and creditworthiness of your co-applicant. Here are some of the top things that you should known before you apply for an unsecured education loan:
Eligibility Criteria Are Stricter
The eligibility criteria for unsecured education loans are more stringent than that of secured education loans. Unsecured loans require a co-applicant with good credit and a stable income and a strong credit history. Without a collateral acting as security against risks of default for an education loan, financial institutions have to rely primarily on the student’s academic background and chosen course, university, and country, along with the financial standing of the co-applicant.
Loan Amounts May Be Capped
Most lenders have a cap on the maximum loan amount that you can borrow under an education loan without having to pledge collateral, depending on the course, academic institution, and country that you have chosen for pursuing your higher education. In cases where the loan amount seems to fall short of the requirement for studying at premium international universities, students may need to plan for additional financial solutions.
Interest Rates May Be Higher
Collateral-free education loans pose a higher potential risk for lenders, which is why the interest rates for unsecured education loans tend to be higher than those for secured education loans. It is important that you compare various loan offers from different lenders to find the best interest rates. Also, confirm whether the applicable rate of interest is a simple rate or compound rate during the moratorium period. You should also calculate EMI for education loan offers, so you can make an informed borrowing decision.
Understand the Moratorium Period and Repayment Terms
Most lenders offer a moratorium period, where you will not be required to make repayments. The moratorium period offered will vary from one lender to the other, but it generally covers the entire duration of your course, plus an additional 6-12 months after completion of the course. You will be required to start making repayments towards the education loan only after the moratorium period.
Applying for an education loan without collateral can be the right choice for you for financing your academic aspirations. However, it is crucial that you put in the dur time and research before you choose an education loan offer, so you can make an informed decision.
