Unsecured loans are the ones that we want and do not ask for collateral.I will now explain what collateral is – It is a type of guarantee that you need to give to the lender and can be in the form of gold,fixed deposits,property papers etc.Depending on various factors,a lender will either ask for collateral via a secured loan or unsecured without the collateral.
Education loan without collateral in india – FAQs
1.How do i avoid getting my education loan without collateral rejected?
If you wish to apply for a loan whereby you do not have to keep any collateral or security then there are a few things that you need to keep in mind before submitting your application.
Get a strong co applicant – Since you are not pledging anything to the lender,you need to be supported with a co applicant who is financially strong,has a good job or good income,has good credit worthiness,has no outstanding debts and possibly who is well educated themselves.
Have good grades – A very important point to keep in mind is that you need to have good grades in board exams if you are applying for an undergraduate program and if you have done a professional course like engineering,architecture etc then you need to remember to keep your number of atkts well below 6 totally.This means that in your 4 years of education your maximum atkts shouldn’t cross 6.I know,this is a hard thing to take care of but it will definitely give you an advantage to get your loan sanctioned without collateral.This proves how good a student you are and also shows how sincere you might be to return the loan amount on time without defaulting.
Country of study – Many students go to first world countries like USA,Canada,UK and Australia which is the best for a life later as well as job prospects are more financially rewarding.However getting into universities in these countries are much more expensive as compared to say Russia,Ukraine,South Korea.Not only that,the degrees from these smaller countries are not recognized in many places.Russia is known to have cheap medical courses and many students from India go there.However these are not recognized by the MCI and medical board.This is the reason you might not get a collateral free loan for these countries.
Course and duration – Many lenders prefer shorter duration courses like post graduate and management courses that run for 2 years.Undergraduate courses which are 4 and 5 years long are also funded but are harder to sanction for two main reasons- firstly,its a longer gap between money lent and repayment for an UG course and also the loan amount is higher for UG courses because they are of longer duration of 6 to 8 semesters.In post graduate courses the student will start repayment sooner.usually a period of 6 months to a year is given gratis until the student can get employment and then start paying back.As far as courses are concerned,
Age of applicant/co applicant – Most lenders prefer that the applicants are currently employed or self employed with a running income.This goes to say that the applicant should be well below retired age and preferably below 50 years of age.However one thing to keep in mind is not to choose a young co applicant,if they are over 30,this is because they will be in a higher corporate position and also will be earning more.This looks good on paper and gives you a stronger chance of securing your education loan without collateral.The co applicant is your anchor and would be responsible for paying back your loan if in the event you are unable to.
2.What are the factors to keep in mind while choosing a guarantor/co applicant?
One of the most important things that you will need in order to get your education loan without collateral passed is your co applicant.Remember that this type of loan is special because you as a borrower are not pledging anything of value as security.Therefore the only guarantee that the lender has is backed by the co applicant.
When you choose a co applicant make sure that they :
a.Are below 50 years of age preferably
b.Have a well paying job in the corporate world or has a good running business income
c.They should have no debts,late payments,bad credit history on previous loans and credit cards.
d.They need to have a good amount of assets in the form of property,bank balance,fixed deposits etc.
e.Ideally they should have a a good education and a degree from a reputed institution.
3.What documents would be asked by the lender?
There are many documents that will be asked before your loan can be approved.If your loan is approved there will be some paperwork to be done after that.The most important documents that will be asked are that of your co borrower as they will be the ones who are standing guarantee for the return of your loan amount.In some case where you cannot pay back the lona,your co paplicant becomes legally responsible to pay it back to the lender.
There fore his bank statements,salary slips if hes working or ITR copies of the past 2 years if hes a business person will be of prime importance. Some of the other documents that might be asked are:
Address proof and identity proof of both applicant and co applicant
Previous education degrees/scores/mark-sheets of applicant
Transcripts of previous educational qualification like engineering/junior college
CIBIL score or credit score from a reputed agency of the co applicant
Letter of acceptance by the university/college of the student
Work experience/fixed asset list of the co applicant
4.What is the maximum loan that i can expect?
Most public banks and other institutions will easily approve an education loan without collateral of 7.5lacs.However most foreign courses cost much more than this and one of the few public banks are SBI that can even fund you more than this.Private banks usually give upto 15 lacs without collateral but depending on a strong co applicant and other factors you may receive upto 40 lacs.
5.What can this unsecured collateral free loan be used for?
Just like any other education loan that that is disbursed by a lending NBFC or bank,the funds can be used by the students for various things like tuition fees,airline travel fares,homestay or dormitory fees,laptop,study books and more.
6.Should i opt for a private or public bank for my loan?
There are certain limitations when it comes to borrowing from a public bank as compared to a private banks and also NBFC- non banking finance corporations.The private banks and NBFCs have the liberty of providing a higher amount of loan for the student at very competitive rates and are very loosely regulated on the maximum cap that they are allowed to provide.
However the public sector banks have a cap on the maximum loan amount and this can range from about 7.5 lac to about 15 lacs.Also they are very rigid with things like processing fees,repayment and disbursement options.However the rate of interest might be lower in public banks as compared to private.
Talking about rate of interest on your education loan,you need to understand that there is a difference of atleast a few percentage points between a collateral free loan and one with collateral.Lenders tend to charge more in collateral free loans because of the greater risk involved.
Both private as well as public banks will charge the borrower interest in the range of 11%-15% depending on the tenure of the loan and the country for which the study program is based in.
Indian banks -public
Indian banks – private
7.5% – 12.5%
8.5% – 12.5%
Time for sanction
7.How hard is it to repay back the loan?
All lenders offer the students a moratorium or grace period of 6 months time after they finish their course and this time is to look for a job.Most students after applying for a study visa also get a work visa also for the same duration of the course.So if your course runs for 18 months then you will be also granted a work visa which is valid for 18 months.It takes some time to secure a job so the lender will allow you this time to get settled and only after that will start your monthly cycle of EMI installation that you have to pay.
8.Is it easier to get a loan for study abroad?
There are two sides to this answer,yes and no.Ill tell you both in detail- Lenders love to give students loans who study abroad for two reasons- one,the foreign study loan is usually a higher loan that is needed as compared to a loan for domestic studies in India.On the other side,students who study abroad and also get a work visa after they complete the course have a higher chance of clearing off the loan with success in a shorter duration of time.This is because they will be earning in dollars,euros or pounds etc.
As far as domestic unsecured loans are concerned,the lenders will have a smaller amout of loan to disburse and therefore the risk is less.
9.What taxes will be levied on my loan?
As an applicant you will have a few tax benefits that you can claim when filing your returns.Under section 80E,you can get these benefits when you start repaying your loan amount and this will be on the interest which will be deducted over a period of 8 years.However there is no upper limit for claiming the deduction.
As far as taxes go,you should also be aware that once your EMIs start after 6 months,you wil lalso be taxes on the foreign remittances that you send to India.This will be around 6.5%
10.What other fees will i have to pay on my loan?
Most public banks do not charge extra application or processing fees,however they also might not cover your entire cost.Private lenders,banks and non banking institutions will psosible cover anywhere from 75% to almost the entire cost by way of your student loan but will also hcarge you loan processing fees ranging from 0.75% to 2%.
11.Which is better a collateral free loan or a secured loan?
there are a few pros and cons of a collateral free loan.If you ask anyone-they will tell you to go for a collateral free education loan,and this maybe a good idea because you will else have to pledge property documents or fixed deposits etc for the entire period that the loan will be repayed.This could be even 7 years which is a long time.Only after the entire loan is paid back will your collateral be handed over back to you.
In a collateral free loan there are also a few cons and these are higher interest rates on the loan amount,higher processing fees,many more documents,longer procedure and time taken to sanction the loan.Also there will be more chances of securing a secured loan as compared to an unsecured loan.
12.What is the moratorium period?
A moratorium period is a grace period that the lender or bank gives to the student.For example if you borrow 15 lakhs for a post graduate course that is 2 years long,you will not be needed to pay back the loan immediatly.After your course is completed of 2 years,you will be given an additional 6 months in which time you can search for a job.This means you are allowed 2.5 years of no EMIs.However after this period you will need to start paying back the loans which includes the principal amount plus interest on a monthly basis.
Moratorium periods exist in other types of loans also like housing loans, credit card repayments etc.Sometimes the government issues a directive to all lenders to give a few months whereby the borrower does not need to make any monhtly EMIs.this happened during the covid pandemic also.However interest will keep on getting accrued.
13.What are STEM subjects?
The science,technology,engineeing and mathematics based courses are hot favorites for lenders.This is becuase once a student joins one of these courses,the earning potential is miuch higher and job security is also better.This inturn will translate to a more stbale higher income for the student once he/she starts working and the loan will be able to be paid back easily.
Noadays the biggest technology companies,dot coms and e commerce companies all like to hire engineers who have done a post graduate course from USA/Canada.Infact when a student takes the GRE exam in order to get a score for admission abroad in engineering colleges,the banks and lenders will approve higher loans without collateral at lowered interest rates if you have a higher score.All GRE scores above 300 will give an advantage to the student in terms of lowered interest rates and higher loan amounts/lower processing fees.
14.What is the process for getting a collateral free education loan sanctioned?
The entire process starts off when you meet the banking executive who will collect the required documents as mentioned above and scrutinize them.This will take a few days to a week.Your chosen co applicant or guarantor will be a great help in getting your loan approved without collateral,and his/her documents will also be taken for scrutiny.After inspecting the documents,the maximum amount of loan will be offered and some lenders will choose to even cover the entire 100% that you need.
The requisite processing fees as well as application fees if any will be charged.Most public banks do not charge these extra fees however Private lenders and non banking companies will charge the applicant about 1% or 2% by way of loan processing fees.