Education loans have gained much popularity in India due to an increase in the number of students aspiring for higher education from abroad and rising education costs. MBA from a top Indian business school can cost you anywhere between Rs. 15-25 lakhs and the same from abroad can cost up to Rs. 50 lakhs. Living and travel expenses further add to this cost and make it difficult for students to meet the complete cost of education with family savings.
Education loans are a better way to finance higher education since they offer tax benefits under Section 80E, have flexible repayment terms and help protect your parents’ retirement corpus. In India, many banks and NBFCs offer education loan on a competitive rate of interest with the added benefit of moratorium period and zero margin money. With some NBFCs, you can also get your education loan pre-approved before admission confirmation, thus enabling you to apply to foreign universities with the required proof of funds.
Education loan can be classified into two main categories - Secured and Unsecured
Difference between Secured and Unsecured Education Loan
Secured loans, as the name suggests, are secured with collateral. However, no collateral is required for unsecured. Let’s understand collateral in more detail.
What is collateral?
Most financial institutions require education loan applicants to pledge an asset against their loan to minimize risk.
What are the types of collateral?
Collateral can be a tangible asset like non-agricultural land, house, apartment, bungalow, shop etc. or a non-tangible asset like fixed deposit, life insurance, stocks etc. The type of collateral can differ among various financial institutions.
Why is collateral required?
In case a borrower fails to repay the loan, the collateral pledged against the loan is used by the lender to make up for the losses. Since the risk associated with an unsecured loan is higher, the rate of interest on an unsecured education loan is higher than a secured education loan.
What should be the value of collateral?
The value of collateral can be less than, equal to or more than the loan amount. Each applicant has a unique profile and a unique set of requirements. Financial institutions assess each profile individually and hence the value of your collateral depends on a number of factors.
These factors include, but are not limited to -
- Student’s academic track record
- Credit worthiness of the borrower/co-borrower
- Ranking of the institution the student will be attending
- Loan amount and tenure
Before applying for an education loan, you must analyze and compare education loan products offered by various financial institutions since each financial institution has its own set of terms and requirements when it comes to collateral.
Some NBFCs provide unsecured education loan up to Rs. 35 lakhs. Unsecured loans are especially beneficial for students who are unable to offer collateral but have an extraordinary academic track record. Students with confirmed admission in a top ranking university can also get unsecured loans since their employment probability and loan-repaying capability is enhanced. Moreover, students whose co-borrowers have a good credit score, stable income and clean financial reputation may also get some relief in collateral requirements.
For more information on HDFC Credila’s Education Loan, visit www.hdfccredila.com.