USD vs INR Loans: Why APR Matters?

When discussing education loans, you may come across several lenders, including banks, NBFCs, and international lenders like MPOWER Financing. The main dilemma begins when you realize that international lenders offer loans in foreign currencies such as US Dollars (USD). Seeking opinions, you may hear that taking a loan in INR is preferable because USD loans come with higher costs, and it would be easier to repay an INR loan if you earn in USD. Others might argue that USD loans are better since they avoid FOREX charges and Tax Collected at Source (TCS). This debate has been ongoing, but a crucial aspect often overlooked is the Annual Percentage Rate (APR). Today, let’s explore whether USD or INR education loans are better by considering the APR.

Which Lenders Give Education Loans in INR?

There are several lenders that offer education loans in INR. Public sector banks like SBI and UBI provide education loans with collateral, known for their lower interest rates. Private banks such as ICICI, Axis, and IDFC offer both collateral and non-collateral loans, though they are more popular for non-collateral options due to their faster processing times. NBFCs like HDFC Credila also provide education loans in INR, standing out for their flexible repayment options. Each lender type caters to different needs, ensuring a variety of choices for students seeking financial support for their education.

Which Lenders Give Education Loans in USD?

There are international lenders that offer education loans in USD. MPOWER Financing is one such lender that provides loans for studying in the USA or Canada. The approved loan amount is given in USD or CAD based on the target university, with a maximum loan amount of USD 100,000. The interest rates start at 12.99%, and these are fixed rates that will not change in the future, unlike other education loan lenders with variable interest rates. Additionally, MPOWER Financing offers the Path2Success program, which includes visa services like visa prep courses, financial services such as opening a US bank account, and career services including access to a customized job search tool.

Role of APR in Education Loan Comparison

The APR in an education loan represents the total yearly cost of borrowing, including the interest rate and any associated fees. It provides a comprehensive view of the loan's true cost, helping borrowers compare different loan options. Unlike the nominal interest rate, the APR reflects the actual expense of taking out a loan, making it a crucial factor in deciding the most cost-effective option for financing education. Some of the importance of APR are listed below:

Comprehensive cost: APR includes both interest rates and fees.

Comparison tool: Helps compare the true cost of INR and USD loans.

Financial planning: Assists in budgeting and planning for repayment.

Informed decisions: Enables borrowers to choose the most cost-effective loan option.

Transparency: Reveals hidden costs not apparent with just the nominal interest rate.

Let's look at an INR loan from a private bank from the perspective of APR. Suppose you have taken an unsecured loan with a co-signer from a private bank at a 12% interest rate, which is variable and may increase in the future. Forex charges of 2% - 6% will be added when the funds are transferred to the university and during repayment when you earn in USD and have to pay back the loan monthly. Additionally, there is mandatory insurance for these types of loans, adding about 2% - 8% more. Apart from this, there is a processing fee during the application process, ranging between 0.5% - 2%. Considering all these costs, the APR of an INR loan could potentially reach about 16%. It can be lower or even higher based on the applicant's profile. 

Difference Between USD and INR Education Loan

In the above section, we made a thorough analysis of the INR education loan from the perspective of APR. Now, it is time to understand the differences between USD and INR education loans and how APR matters. For convenience, we will assume that the INR loan has been taken from a private bank and is an unsecured loan with a co-signer, while the USD loan is assumed to have been taken from MPOWER Financing.
 

*Please note that there are cases where you can get a better overall APR with Indian lenders as well. The above table used factual data and was for illustrative purposes only to show a true apples-to-apples comparison between these two options

When choosing between INR and USD education loans, it's crucial to look beyond just the nominal interest rates. The APR provides a comprehensive view of the total cost of borrowing, including all fees and additional costs, allowing for a more accurate comparison. Ultimately, the decision should be based on your specific financial situation and future earning prospects. By understanding the true cost of each loan option through the lens of APR, you can make an informed decision that best suits your needs and potentially reduce the amount of money you pay in the long run.

If you are looking for an education loan in USD, MPOWER Financing is a good choice. They offer several benefits, such as a fixed interest rate and APR starting at 12.99% (13.98% APR). Additionally, their Path2Success program provides valuable services that can make your education journey abroad easier. To apply for an MPOWER Financing education loan, simply check your eligibility with GyanDhan.