Until the end of the first decade of the 21st century, abroad education used to be a big deal for Indian students. Abroad education was somehow restricted to students from well-heeled families, and there was an acute shortage of lenders providing education loans for abroad education. But with the opening of the Indian financial and banking market to the world opened new avenues for lenders to expand their credit facilities. This marked the beginning of an era when abroad education was no longer a luxury, affordable to a select few. Now students from humble backgrounds, too, have access to credit facilities.
The scale and scope of lending have changed multi-fold, and people now see education loans as a way to tread upward rather than some sort of financial burden. In the last couple of years, banks (both private and public), NBFCs, International lenders have eased the lending process by revamping the terms and conditions of credit. The loans now have more flexible repayment terms, floating interest rates, long repayment tenure, etc. The government has also introduced new policy changes like insurance coverage on loans and RBIs appeal to extend the moratorium period for one year.
Banks and their loans
Here comes the tricky part: there is no right answer to the question- which is the best bank for abroad education loans? For instance, Public Sector Banks have primarily focused on secured loans, private banks focus more on secured loans but also have a substantial number of borrowers for unsecured loans. NBFCs and International lenders have a considerable chunk of borrowers who take unsecured education loans.
Getting a loan from a public sector bank
All lenders provide some sort of perks to the borrowers. If one chooses to take a secured loan from Public Sector Banks(PSBs), the borrower can get a very low rate of interest on loans compared with Private Banks, NBFCs, and International lenders. Also, the term of repayment is usually more customer-friendly with a PSB than other lenders. The loan tenure is also around 15 years that is moderately sufficient to repay the loan. The processing fee on loans is also less or even zero in some cases. The moratorium period is also the longest in the loans by PSBs, approximately one year in most of the cases. An applicant can also claim tax exemption under sec 80E and also claim subsidies provided by the government.
In a nutshell, many perks come with a PSB abroad education loan, but the downside is that they don’t provide unsecured loans. PSBs refraining from unsecured loans has left most of the lenders to go to private banks, NBFCs, and International lenders. State Bank of India, Bank Of Baroda are the leading PSBs giving abroad education loans.
Getting a loan from a private bank
Private banks are the second-best choice for taking abroad education loans. Since they provide unsecured loans and secured loans, they also bridge the gaps left by the public sector banks. One can claim government subsidies and also claim tax exemption which is not available with loans from NBFCs and International lenders. The rate of interest is also relatively less than other lenders but more than PSBs. There is another perk with private banks, it’s the ease with which the loan applications are processed. Most of the PSBs take around 15 days, while private banks complete the whole process within 10 days. Also, the loan repayment time is about 20 years (with Axis Bank), that’s way more than Public Sector Banks or NBFCs, or International lenders.
Comparative analysis of loans by different banks
While selecting an abroad education loan, one must consider all the factors that may affect their finances in the present and the past. Not all loans are meant for everyone. For instance, if a loan applicant can’t pay interest at the time of studies, then loans from most NBFCs and International lenders might not be appropriate. If a loan applicant doesn’t have the collateral to take a secured loan from a public sector bank, private banks are the best choice to go for abroad education loans.
Factors that banks consider for an abroad education loan
In the growing uncertainty with rising NPAs in the last couple of years, banks are now more vigilant in their credit operations. Banks are ready to provide loans, but the extent of assessment has gone up, and they consider a multitude of factors before moving ahead with sanctioning the loan. So, borrowers need to know the factors on which the banks evaluate a loan application and what are their odds of getting the loan approved.
Course and educational institution
All the leading lenders in India have a list of institutions on which they are eager to lend. Not all universities come under this list. So, it’s in the best interest of a loan applicant to check the list of institutions. Also, not all the courses are eligible for abroad education loans. The job prospects post completion of the course is one of the key determinants.
CIBIL score of the co-applicant
One of the critical concerns for any bank is the repayment of the loan. To ascertain the credibility of the borrower, banks rely on CIBIL Score. A score of more than 700 is considered reasonable by the banks.
Valuation of collateral
In case of failure to repay, banks rely on the collateral. So, the assessment of collateral plays a vital role in the sanctioned loan amount. The more liquid (ability to get converted into cash in case of loan default), the higher the approved loan amount will be.
Income of the co-applicant
For secured loans, banks have the option to sell or liquidate the asset and recover the loan amount. But it becomes a tedious task to assess the ability to repay in case of unsecured loans. The sanctioned loan amount is calculated based on the income of the co-applicant. At times banks also ask for a third-party guarantor when the annual income is below a certain limit.
So, there is no dearth of options when it comes to getting a loan for abroad education. The best way out is to reach experts from financial services companies working in the space. They not only help in making an informed choice instead guide the process.