Guide on Education Loan for Abroad Studies Without Collateral 2023

Students who aspire to pursue higher education abroad but lack the financial means can benefit significantly from student loans. Millions of students are fulfilling their dreams of studying abroad today, thanks to the provision of education loans.

Education loans can be of two types: secured and unsecured. A secured loan is one that comes with collateral, whereas an unsecured loan does not. A collateral loan is where a specific asset is pledged as security to the lender against the borrowed amount. This asset could be in real estate, fixed deposits, land, gold, etc. 

Several banks in India provide unsecured loans for study abroad, up to a certain amount. Students who don’t have the resources to provide any collateral will benefit from this type of loan. However, not everyone qualifies for a loan without collateral to  study abroad . Moreover, a study-abroad loan without collateral has a slightly higher interest rate and shorter repayment period.

Benefits of an Education Loan without Collateral

Most international students and their guardians apply for education loans only if they have an asset to pledge as collateral. However, contrary to popular perception, taking an education loan without collateral has its own set of advantages. They are as follows:    
 

• Up to Rs. 50 lakh of the loan amount can be availed without pledging any security
• No EMIs required to be paid during the moratorium period
• 100% finance provided for higher education
• Loan can be availed before admission
• Top-up loans can also be availed
• Flexible repayment option
• No penalty for prepayment
• Quick processing time
• Less paperwork

Eligibility criteria for a study-abroad education loan without collateral    
 

Education loans for studying abroad are granted after a thorough scrutiny of the applicant’s academic profile and suitability, more so in the case of non-collateral loans. The eligibility criteria for receiving an unsecured loan or education loan without collateral are given below:    
 

1. A minimum score of 60% in high school: To ensure the student's employability potential, the applicant must have scored at least a minimum of 60% in 10th, 12th, and degree-level courses. Also, students with more than three backlogs might not be eligible for unsecured student loans.
2. Income and creditworthiness of financial co-applicant: The financial co-applicant’s income and CIBIL score is the most important factor for an unsecured education loan as lenders are not taking any collateral. A good income report or CIBIL score of the co-applicant assures the lender that even if a student defaults on the loan balance, their financial co-applicant would be able to repay the loan. 
3. Courses for study abroad applied to Loan sanction without collateral also depends on the course/degree the applicant plans to pursue. Lenders prefer undergraduate or postgraduate courses STEM disciplines. Private banks maintain a list of recognized universities for which they approve an unsecured loan. Loans are usually not provided for foundation, certificate, pathway, integrated, aviation, and MBBS degree programs .
4. Country that the applicant is applying for: When it comes to approving an unsecured loan, the country applied to also matters. Lenders prefer major study-abroad destinations like the US, UK, Canada, Australia, Ireland, and Germany. Some private banks cater to particular countries and specific degree programs only.

Education loan without collateral: Procedure to apply 

Let us now take you through the step-by-step procedure to apply for a study-abroad education loan without collateral:    
 

1. Research your options among various loan providers for overseas education without collateral security, and pick the one which is the most suitable for you.
2. Check all information, including loan features and instructions on the moratorium period, repayment tenure, interest rate, etc.
3. Go to the official website of the loan provider you’ve chosen.
4. Fill in the relevant loan application form.
5. Scan and upload the required documents.
6. Wait for the decision.

Documents Required for Education Loan Without Collateral

Documentation is crucial to applying for an education loan to study abroad. One must be very meticulous in keeping all the requisite documents in order. Listed below are the required documents for completing a loan application.    
 

List of Documents Required:

• Application form for the loan
• University offer letter mentioning tuition fees
• Academic transcripts   
• Standardized test scores IELTS , TOFEL , GRE & PTE   
• Proof of family income (income tax returns, salary slip, property proof, etc.)
• Bank statements for the last six months    
• Employment documents
• KYC documents of both applicant and co-applicant (including Aadhar card, Birth certificate, PAN Card)
• Residential proof with electric bill
• Self-declaration    
   

When applying for an overseas education loan without collateral, income proof of the financial co-applicant becomes very crucial. Here’s what works as valid income proof to obtain an unsecured education loan:    
 

Banks Offering Education Loans Without Collaterals

Lenders for foreign education loans without collateral can be categorized into public and private lenders. It is observed that private lenders allow a larger sum as non-collateral education loans.    
 

Some prominent lenders include public sector banks like SBI, Bank of Baroda, etc., private banks like Axis Bank, ICICI Bank, HDFC. Other lenders include NBFCs (Non-Banking Financial Companies) and some foreign lenders. The interest rates usually lie between 10-16%.

Here are details of banks which offer education loans and the amount allowed without a collateral:    
 

Don’t ignore the additional costs!

While an unsecured loan has loads of benefits, there are some costs to bear for these benefits too. They are as follows:

Moratorium period: A moratorium period is when the student starts using the loan amount but is not obliged to start repaying them. It covers the students' course duration and 6-12 months more. Usually, private lenders do not give any no-payment moratorium period. Students are mandated to start repaying at least the interest amount, partially or in whole.

Processing fee: Public banks do not charge any processing fee for an unsecured education loan. Private banks charge up to 1% on the loan amount plus GST; for some, it is Rs. 15,000 (GST excluded). NBFCs charge a processing fee of 1-1.5% plus GST on the loan amount, and foreign lenders charge a minimum of 2% plus GST on the loan amount.

Loan insurance: For private lenders, it is mandatory to have loan insurance, which is 1-1.5% of the loan amount for private banks and 2% or above for NBFCs.

Why some applications for unsecured education loans get rejected

Besides failing to meet the basic eligibility criteria set by lenders, there are other reasons why lending institutions sometimes reject students' loan applications. The reasons are usually one or more of the following:

Undergraduate program: Private lenders prefer funding a postgraduate program because the course length is shorter than an undergraduate program. NBFCs may consider funding undergraduate studies if a student's financial co-applicant has an excellent income source. Foreign lenders do not fund undergraduate programs at all.    
 

Age of the applicant and co-applicant: NBFCs are not willing to offer loans for students above 27 years. They can consider up to 30 years as far as the other profile parameters are suitable. Also, NBFCs won't accept the application if the co-applicant is retired or about to be retired in 3 years.

FOIR: FOIR means ‘fixed obligation to income ratio.’ Private banks reject the loan if the co-applicant does not meet the FOIR norm, that is, if the co-applicant's EMI obligations are too high.

Conclusion

If you meet all the conditions and provide all the required documentation, obtaining an education loan for international studies without collateral may be simple. It also becomes crucial for you as an international student to comprehend the conditions of the uncollateralized foreign study loan. You can even connect with our professional overseas education consultants to learn about a foreign education loan without collateral so you can apply for one successfully!

If you're interested in studying abroad, you can reach out to the Edmissions team at edmissions.com . We will assist you with the  application process. For any further queries, you can contact their specialists at [email protected] .

For a quick overview related to study abroad, click here.