Can I Borrow Abroad Education Loans from Multiple Lenders?

    Updated on: 04 Sep 2023


    Studying abroad was never cheap and the costs associated with studying abroad have only risen in recent years. A two years Master’s program in the US can set you back by a minimum of INR 25 lakhs. And this is just the tuition fee. Add to it, the living costs of approximately INR 7 lakhs a year. Similarly, a Master’s program in the UK will have a minimum tuition fee of INR 1250000 and students have to spend between INR 9 lakhs and 12 lakhs towards living expenses in the UK. 

    Other popular countries such as Australia and Canada too have similar expenses for higher studies. Because of the huge costs associated with studying abroad, many Indian students take an education loan to fund their study abroad dream. In their desire to choose the best loan offerings by different lenders in India, some students assume that it is okay for them to take education loans from two different lenders. 

    If you are such a student and are about to make this mistake, then hold your horses and read this blog and learn why a student can apply for an education loan with two lenders but will only be able to get disbursement with one of them. 

    Before discussing why a student can get an education loan disbursement from only one lender, let us first discuss the two kinds of education loans available in India. 

    Check Your Education Loan Eligibility Apply Here

    Secured Education Loan or Education Loan with Collateral

    This is an education loan where the borrower has to pledge security when taking a loan. This security can be an immovable asset such as a house or land or an intangible asset such as government bonds, Fixed Deposits, Mutual Funds, etc. This loan has a lower rate of interest and comes with a moratorium period. This loan is offered by public banks, private banks, and NBFCs.

    To know more about Types of Collateral Security Acceptable for an Education Loan, click here.

    Unsecured Education Loan or Education Loan without Collateral

    The student does not have to pledge any collateral when applying for this loan. This loan has a higher rate of interest. They are offered by nationalized banks, private banks, and NBFCs. It should be noted here that nationalized banks offer unsecured loans up to INR 7.5 lakhs only. NBFCs and private banks on the other hand offer unsecured education loans of a higher amount, even up to INR 50 lakhs. However, there is no moratorium given by NBFCs and a few private banks on such unsecured loans and students have to make some repayment even during the study period.

    To know more about Education Loans From NBFCs, click here.

    Since the demand for education loans is on a high in India, lenders are coming up with different education loan schemes, something that often confuses first-time borrowers who end up applying to two schemes with two different lenders in the hope of reducing their financial burden. A first-time student borrower who may not have sufficient collateral to pledge for all study-related expenses may apply for a secured education loan - with a lower rate of interest - from Lender 1 (to cover the tuition fees) and an unsecured education loan from Lender 2 (to cover the cost of living and other study-related expenses). Or a student who may need the quick sanction of an education loan may decide to approach a private bank or an NBFC (Lender 1), who are known to sanction loans in minimum time. Since secured loans from public banks have a lower rate of interest, this student then decides to apply for a secured education loan to a public bank (Lender 2) to cover the living cost and other study-related costs. This first-time borrower of course is unaware of the fact that this is not possible. But why is that so? Let us explain this below:

    1. For sanction of any kind of loan in India, the borrower’s CIBIL score plays an instrumental role. CIBIL score is given to individuals by Credit Bureau of India Limited, an organization that is responsible for tracking all financial transactions - such as the history of credit card payment, loans taken, payment schedules of their loan EMI, etc - of an individual.
    2. When it comes to education loans, the CIBIL score plays a very important role. Nationalized banks such as SBI, Bank of Baroda, Punjab Bank, etc sanction secured education loans to borrowers who have a CIBIL score higher than 650. A few private banks and NBFCs on the other hand require a CIBIL score greater than 700 for sanctioning a loan. It should be remembered that having a lower CIBIL does not mean that the education loan will not be sanctioned. However, the chances become slimmer as the CIBIL score falls lower and is at the discretion of the lender.

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    What happens if the applicant has a good CIBIL score and applies to two different lenders for an education loan? 

    As soon as a loan application is received, every lender first checks the CIBIL score of the applicant and the co-applicant, if any. Only when the CIBlL score meets their set requirement is the loan application further processed. A student’s loan application to two different lenders goes through the following steps:

    1. Lender 1 checks the CIBIL score of the applicant and the co-applicant and if it is satisfactory, sends it to the relevant department for further processing. Meanwhile, the student applies for a second education loan for the same course with Lender 2. 
    2. Lender 2 also checks the CIBIL score of the applicant and gets to know that the applicant has applied for a loan for the same course with Lender 1. But since this does not affect the applicant’s CIBIL score yet, Lender 2 also sends the loan application for processing. 
    3. With all documents being in place and all other criteria being met by the applicant, both the lenders approve the education loans for the applicant. Till this point, the applicant’s CIBIL score remains unaffected since the loan has not been disbursed by either lender. 
    4. Once the loan is sanctioned, the applicant needs to accept the offer and sign the loan agreement. The loan is disbursed only after this formality has been completed by the applicant. Let us assume that the applicant completes this formality with Lender 2 first and lender 2 disburses the first installment of the education loan. 
    5. This loan disbursement gets recorded by CIBIL in the credit report of the applicant as well as the co-applicant. Consequently, the CIBIL score of both the applicant and the co-applicant reduces. 
    6. Lender 1 will get to know of this CIBIL score reduction and this will result in rejection of the loan sanction by them. 


    Thus we see that a student can apply for two education loans from two different lenders for the same course but will only get disbursement from one of them. 

    All this hassle could have been avoided if the applicant had better guidance and knew which loan scheme from which lender was the best for their study abroad dream. Well, if you fear falling into this trap, then get in touch with GyanDhan and solve all your education loan doubts. We at GyanDhan guide prospective education loan seekers to choose the best education loan and help them get the best deals too. 

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    First published date: 11 Mar 2021

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About author

Vishakha Bhagia
Interest in Finance with a flair for writing, Vishakha has written on education loans and the study abroad field for the last two years with articles published in Times of India, Outlook India, The Hindu, and many more publications.

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