Education loans are offered by the government or private money lending sources to students to finance education-related expenses. The expense of pursuing higher education in a foreign country could be colossal, making education loan a viable option for students who plan to pursue their education in foreign countries. Apart from providing financial assistance that helps to bridge the gap between the funds available and the required amount, education loans have a plethora of benefits:
There are predominantly two types of education loans, secured (with collateral) and unsecured (without collateral). The chief difference between these education loans are the assets involved:
In a secured loan, lenders keep their immovable property or liquid assets as a guarantee against the loan. As the loan is given against the borrower’s assets; therefore it has low-interest rates and flexible repayment terms. Whereas, in an unsecured loan collateral is not required making the interest rates relatively high.
Application for education loan:
The borrower can apply to banks or NBFCs depending on the requirement (loan amount, secured or unsecured loan, etc) by filling out a detailed application form and supporting the application form with the essential documents. Students can even apply online for an education loan.
Bank/NBFCs review the application:
After all the documents have been submitted, the bank reviews the borrower’s application, their co-applicant’s credit history, value and verification of collateral (in case of a securedloan) and their background (academic and financial). Based on this data, the bank will decide whether to approve or reject their case. In case, the loan is approved, the bank will decide the interest rate which is negotiable.
Disbursal of the loan:
After all the formalities and negotiations, the bank disburses the tuition and hostel fees either to the college/institute or in student’s account in some cases while loan amount for other education-related expenses is directly transferred to the borrower’s account.
A borrower can choose from various public, private banks or NBFCs to apply for an education loan. The processing of education loan and disbursement usually takes between 20-30 days, whereas Credenc helps in availing the loan in the record time of 7-8 days.
A borrower can either get the disbursement in his account or it is directly disbursed to the college/institute. Following steps are followed to disburse the education loan for studying abroad:
MORATORIUM PERIOD: It is the time period given by a bank to the borrower to find a job which means he doesn't have to start repaying the loan just after he completes his studies. It is like an EMI holiday usually ranging from 6 months to 1 year. There is one more type of moratorium period, called PRINCIPAL MORATORIUM in which the borrower is exempted from paying the principal amount, till the time holiday period ends or as soon as the person gets a job (whichever is earlier), but he has to pay the Simple Interest or a portion of it.
The repayment starts after the moratorium period or as soon as the person gets a job (whichever is earlier). But, the interest is charged even during the study period and the moratorium period. The interest charged during the study and moratorium period is Simple Interest whereas, after the moratorium period, the interest charged is Compound Interest. There are usually 3 modes of repayment
For some banks and NBFCs, there can be one more type of mode of repayment, known as Direct EMI. This is when the student has to start paying his/her EMI since the beginning of his/her course.