Financial guidance

How to choose the right loan product for your study abroad


Planning to study overseas? You’re not alone. The numbers of international students continue to rise. And, that should give you a big burst of hope. Not only is it possible to be accepted; it’s also possible to find the financing you need to make it happen.

But, international study financing doesn’t happen at a snap of your fingers (no matter how close we get to a world of immediate gratification). Frustratingly, most international students need to hustle with these decisions; you can’t get a visa until you can prove your financial capacity to study abroad. Yikes!

Of course, it doesn’t need to be as scary as all that; remember that the number of international students is on the rise – and they’re not all independently wealthy.

Types of loans available

Loans come in all shapes and sizes; each one has its own set of strings attached. Educational loans, however, fall into a few standard groups.

  • Government loans – Some countries provide backed educational loans that a broad range of students can access through a standardised set of applications. Where these loans are available, they often include some form of debt forgiveness or low-interest rates.
  • Family loans – While these loans are often generously provided with low or no interest rates, they usually aren’t large enough to cover the full amount of a year or two (or more) abroad. Not every student has relations that are willing or able to provide these loans, but it’s important to consider national tax implications if you do.
  • Private bank loans – Banks, by definition, are adept at lending money for a myriad of purposes. But (and this happens quite often), they tend to have a difficult time providing loans for international students. It’s not easy to price the risk for those leaving the country, and they are only able to offer amounts commensurate with historical earnings.
  • Cross-border community lenders – In a move to break away from the limitations of private bank loans, innovative companies such as Prodigy Finance, have developed methods and means of providing educational loans to international students. Founded by INSEAD MBAs who struggled to find financing to attend a top-ranked business school, they were determined to create a loan platform that enables students to pursue international education.

These loans vary in more than origination sources – and there are pros and cons to each. In many cases, there are trade-offs that must be made. For example, bank loans may require co-signers or collateral, but are likely to be larger than the zero-interest loan your family can offer.

Still, it’s worth considering all of them to understand when you’ve found the best possible loan product for your international education. It’s just that you’ll need to figure out ways to compare apples with oranges to make an informed decision.

Suggested: True cost of an Education Loan

Factors for loan comparison

Even if you were pursuing graduate study in your home country, it wouldn’t be prudent to take the first loan that comes your way. The comparison of multiple products is always your best bet.

  • Currency – If you’re studying internationally, consider a loan in your host country’s currency. This often makes it easier to get money to the university. More importantly, you can think of it as protection against currency fluctuations during your studies. If this isn’t available, look for loans in stronger currencies that don’t tend to fluctuate as much as those in developing countries.
  • Interest rates and APR – Of course you’re going to look at interest rates, right? Well, yes, but it’s not actually the best number to consider. APR is far more important as it covers all of the fees added to your loan in addition to interest rates.
  • Duration – How long will you have to repay your loan? You may have a choice or be offered a set number of years (usually given as months). Either way, there’s a big difference between two years and ten in the monthly repayment amount – and the interest. Be sure to double check for payments that must be made will you’re still studying; this affects your budget dramatically and isn’t always a good idea.
  • Penalties – No lender will let you off the hook if you miss payments, but you’ll want to be certain that you’re not locked into payments and interest rates if you can make faster repayments. Factor in any penalties that are hidden in the small text.
  • Additional commitments – If someone co-signs your loan, the amount you borrow will reflect against their ability to take a loan for themselves. The same goes for collateral; you can only put property up against a single finance product. This doesn’t make these inherently bad, but it’s better to get by without them if you can.
  • Amount – This should be a no-brainer, but keep in mind that every loan you take counts against the total credit you have available to you. It’s difficult to take several smaller loans than one larger loan. You’re looking for something that covers all of your expenses.

It may be tricky to create a comparison table when you’re provided with information in different currencies, interest rates, and durations. But, you’ll need to work through the best and worst case scenarios for several loans.

While you do so, don’t forget to dedicate some time to scholarship applications. Like Prodigy Finance, these platforms are part of the reason the number of international students continues to increase.

Prodigy Finance is a pioneer in community-funded education loans and offers collateral-free financing to international students attending top schools globally. Prodigy Finance extends loans at competitive interest rates, using an innovative credit assessment model to understand students' expected income post-Masters/MBA.

Rishabh Goel is the Country Manager for India at Prodigy Finance. He studied Economics and Engineering at BITS and moved to Mumbai, where he left the corporate world to teach GMAT/GRE Test Prep. Later, Rishabh pursued Masters in Management at London Business School and is passionate about borderless FinTech.

Note: This is a featured article. This article is not curated by Yocket.

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