Secured vs Unsecured Education Loan for Abroad Studies

The surge in the number of students studying abroad has been remarkable, with a 68% increase from 444,553 students in 2021 to 750,365 students in 2022. This rise can be attributed to the exposure and career opportunities that studying at international universities can offer. However, pursuing education abroad comes with a hefty price tag that may be challenging for many students to afford. In such circumstances, education loans for studying abroad serve as a lifeline. Having a comprehensive understanding of the loan process and its various aspects is crucial to ensure that you make informed decisions. Since an education loan is a long-term commitment, knowing these products can significantly influence your future financial aspirations. The first step towards understanding it is knowing the types of education loans for abroad studies.

Types of Abroad Education Loans

Education loans for studying abroad are commonly classified into two categories based on the security provided by the applicant. While most lenders offer both types of loans, certain lenders may specialize in one type over the other, depending on the specific loan category. They are -
 

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  Secured education loan: loan with collateral

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  Unsecured education loan: loan without collateral

Secured Education Loans for Abroad Studies:

A secured education loan, also known as a loan with collateral, asks the applicant to pledge collateral. For education loans exceeding a certain amount, such as INR 7.5 Lakhs, lenders like public banks (UBI, and more) require collateral as security. These secured education loans have lower interest rates and are comparatively easier to obtain due to the reduced risk for the bank.
 

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  The collateral can take various forms, including immovable property, fixed deposit (FD), and LIC insurance policy, among others.

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  The approval process for this type of loan is typically longer as the bank needs to verify all the documents related to the collateral being pledged. 

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  Additionally, these loans have higher chances of approval, with parental income not being a determining factor. 

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  Overall, secured education loans provide a viable option for financing higher education, offering favorable terms and increased approval possibilities, albeit with a more thorough verification process.

Borrowers can basically pledge two types of collateral when applying for a secured education loan. They are as follows:
 

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  Tangible Assets - this includes real estate assets such as houses, flats, etc. Kindly note that agricultural land or land that falls under the jurisdiction of gram panchayat is not accepted as collateral by lenders. However, non-agricultural open land that has clear boundaries is accepted as collateral for secured education loans.

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  Intangible Assets - this includes liquid securities such as fixed deposits, mutual funds, ULIPs, Life Insurance policies, government bonds, etc. Borrowers can pledge an old or open a new fixed deposit for an education loan. However, the fixed deposit holder will continue to get any interest received on these intangible assets.

Did you know that UBI is the only public-sector bank that may accept Gram Panchayat property in some cases for abroad education loan?

Advantages of Secured Education Loan:

There are several advantages of taking a secured education loan.
 

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  The loan amount that you can get will be considerably higher. 
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  The interest rate will be lower. 
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  May get a free moratorium period.
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  Can target any college or university and country.
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  Longer repayment period

Unsecured Education Loan for Abroad Studies:

Unsecured education loan or loan without collateral provide a financing solution for students who do not have collateral to pledge. However, it is important to note that unsecured education loans typically have higher interest rates compared to secured loans and may be more challenging to obtain approval for.

Unlike secured loans, unsecured education loans have a shorter repayment period and often require partial repayments to be made during the study period. Additionally, these loans typically mandate a minimum co-applicant income, ensuring a reliable source of repayment as collateral security is absent. The loan sanctioning decision is often based on the co-applicant's income and CIBIL score.

Advantages of Unsecured Education Loans

A few of the advantages of unsecured education loans are -

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  Swift processing time, as the paperwork involved is relatively simplified.
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  There are some options in this type of loan in which you do not even need a co-applicant. 
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  In a few cases, the loan processing fees are included in the loan amount itself. 

Secured Loan vs Unsecured Loan 

To understand the basic difference between secured and unsecured education loans a comparative table has been presented below:

Collateral vs Non-collateral: Which type of education loan is best?

Both types of study loans have their merits and drawbacks. That said, if you have suitable collateral, secured loans are a safer and better alternative because they charge a lesser interest rate, which saves money in the long run. The loan quantum can get as much as INR 1.5 Crore as a loan. You cannot get such a high amount of loan without collateral property. On the other hand, the loan amount that is required is less like up to 50 Lakhs but if you do not have collateral to pledge then in this case going for an unsecured education loan will be better. Having a proper budgeting process will help you to make the repayment effectively.

Top Lenders for Secured and Unsecured Education Loans to Study Abroad

There are broadly 3 categories of lenders available that borrowers can choose from when planning to take an education loan. These lenders include private and public banks, NBFCs, and international lenders.

Lender providing secured abroad education loan:

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  SBI (public sector bank)
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  UBI (public sector bank)

Lenders providing unsecured abroad education loan: 

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  Axis Bank (private sector bank)
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  ICICI Bank (private sector bank)
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  IDFC FIRST Bank (private sector bank)
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  Avanse (NBFC)
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  Auxilo (NBFC)
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  Incred (NBFC)
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  HDFC Credila (NBFC)

Lenders providing unsecured abroad education loan (without co-applicant): 

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  MPOWER Finance (International lender)
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  Prodigy Finance (International lender)

A comparative analysis has been done between different types of lenders that give secured and unsecured education loans.

SI - Simple Interest, PSI - Partial Simple Interest, EMI - Equated Monthly Installment

Which Lender to Choose?

Now, choosing the best lender can be challenging as it depends on your specific requirements. Let's explore the process using situational examples.
 

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  For instance, if you plan to pursue a master's degree in the USA and have collateral to pledge, opting for an education loan from public sector banks would be advantageous. Compared to other lender types, these banks offer lower interest rates, as indicated in the table above. Additionally, they provide higher loan amounts, making it a favorable choice. Moreover, you can benefit from tax advantages, which will help you save on costs.

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  If you lack collateral but have a financially strong co-applicant who meets the minimum income criteria, private sector banks can be a viable alternative to consider. The reason for this choice is that they tend to offer more favorable interest rates compared to NBFCs and international lenders, though slightly higher than public sector banks. Additionally, private banks generally have shorter processing times and lower processing fees. In some cases, they may even provide loans without requiring a margin, which was typically challenging with PSBs. Furthermore, their ability to offer tax benefits and reasonable repayment options makes them a superior option over NBFCs and international lenders.

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  If you do not meet the eligibility criteria of private banks, NBFCs can be a suitable option as they tend to be more flexible in their requirements. Fulfilling all the eligibility criteria with NBFCscould allow you to secure a loan of up to 75 Lakhs, with a slightly higher interest rate compared to the previous lending choices.

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  In cases where you lack a financial co-applicant and need a loan, international lenders can come to your rescue. However, to avail this option, you must ensure that your target school is on their approved list. Although international lenders may have higher interest rates, the advantage of not needing a financial co-applicant balances it out. It's worth noting that there are no tax benefits with international lenders, and the loan you obtain from them will be in USD. 

How to Apply for Abroad Education Loan?

Securing an education loan can be a straightforward process if approached correctly and through the right channels. For a smooth loan application experience, it is advisable to begin around 4 to 6 months before your desired enrollment date. However, managing this process independently and dealing with multiple lenders can prove to be challenging. Fortunately, GyanDhan offers a simplified solution for obtaining an education loan, making the entire process easier. The following steps outline how GyanDhan can assist you in securing an international education loan with ease.

Step 1: Assess your eligibility for an education loan on GyanDhan's platform.

Step 2: Connect with a dedicated loan expert who will guide you through the application process and recommend suitable lenders.

Step 3: Receive a customized document checklist to simplify the document arrangement process.

Step 4: Submit the required documents either in hard copy or soft copy as per the lender's instructions.

Step 5: Await verification, typically taking 7 to 15 days. Once approved, sign the agreement letter and track progress on GyanDhan's user dashboard.

Step 6: Initiate disbursement following the lender's procedures, with funds directly deposited into your account or disbursed to the university by international lenders.

Now that you have gained a comprehensive understanding of the different types of loans and the variety of lending options available, you can confidently choose the best education loan for your abroad studies. However, if you still have any doubts or prefer a hassle-free process, GyanDhan is here to help. Simply reach out to us, and our team will handle the entire loan application process on your behalf. With our expertise and guidance, you can ensure a smooth and seamless experience in obtaining the right education loan for your international education journey. Contact GyanDhan today and let us simplify the process for you. Check your eligibility now.

Frequently Asked Questions

What is a secured and unsecured loan?

 

Secured loans are those types of loans in which you will be required to pledge collateral while unsecured education loans are those in which you do not need to pledge collateral but need a financial co-applicant in most cases. 

Is it necessary to pledge collateral for an education loan?

 

No, you can get both - secured and unsecured education loans to study abroad. There are several lenders available in the Indian financial marketplace that can give you an education loan of up to 75 Lakhs INR without collateral. All you gotta have is a financial co-applicant that meets the minimum eligibility criteria.

Which type of education loan is best, secured or unsecured?

 

It is hard to choose one because the ultimate decision depends on individual requirements and needs. But it is recommended that in case you have collateral to pledge then you should go for a secured education loan. The main reason behind it is that you can approach public sector banks easily with secured education loans that have lower interest rates as compared to any other lenders. 

Is Gram Panchayat property accepted as collateral?

 

Yes, UBI is one of the lenders that can accept Gram Panchayat Property as collateral in some of cases which depends on the bank itself.

Which type of lender should be preferred the most when taking an education loan?

 

It is recommended that your first choice should be Public Sector Banks like SBI or UBI in case you have collateral to pledge. In case you do not have collateral to pledge then you can move to private banks like ICICI Bank, IDFC FIRST Bank, and more. The next in the list of preferences should be NBFCs like HDFC Credila, and Avanse, and if in case you are not eligible for both of these types of lenders then you can start your loan application process with international lenders like MPOWER Financing or Prodigy Finance.

Which option is easier to obtain: a secured or unsecured education Loan?

 

Both types of loans are easy to obtain with GyanDhan but if a differentiating point needs to be mentioned then it can be said that unsecured education loans take less processing time. This is because when you pledge collateral a few additional steps and a verification process need to be done by lenders that require a few extra days.

Which type of loan/lender will give Tax Benefits?

 

You can get tax benefits when you apply for an education loan. In the case of public sector banks, you can get tax benefits under section 80e and the same is eligible in the case of private banks as well. But when it comes to NBFCs then only HDFC Credila can provide you with tax benefits. International lenders are not eligible for any kind of tax benefits.

What if an unsecured education loan is not paid?

 

If an individual fails to repay an unsecured education loan, they are placed on the defaulter list, which can have a negative impact on their CIBIL score, leading to difficulties in obtaining future loans. Additionally, based on legislation, other legal actions can be taken against that individual.

Which banks give unsecured education loans?

 

If you are seeking an unsecured education loan, you can obtain it from -

• Private Banks - ICICI Bank, Axis Bank, and IDFC FIRST Bank
• NBFCs - HDFC Credila, Avanse, InCred, Auxilo
• International Lender - MPOWER Financing and Prodigy Finance