NBFCs or Non Banking Financial Companies are playing vital role in providing financial help to students going to study abroad. Unlike Goverment and Private banks, these are the financial institutions that provides education loan without taking any security that too in shortest possible time.

As a matter of concern over skyrocketing prices of education, the expenses are ballooning twice as fast as the rate of inflation due to which most of the students are unable to fulfill their dream of studying abroad. 

On account of this, many students prefer to study abroad with the help of an abroad education loan. In order to obtain an education loan for higher studies from Government banks, students are required to pledge collateral, but what about the students who cannot afford to pledge any collateral as security? 

Students who cannot pledge collateral as security can opt for an unsecured abroad education loan from private banks or NBFCs (Non-Banking Financial Companies) in India.

This article aims to elaborate on all the essential factors related to borrowing a study abroad education loan without collateral from NBFCs, how they function, in what situation one is required to approach NBFCs, and so on.

What are NBFCs?

NBFC is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFCs facilitate bank-related financial services and are permitted to manage transactions similar to a bank like lending loans, insurance, debentures, securities, education loan, etc. 

There are four major NBFCs in India that provide education loans, they majorly issue unsecured education loans to students for studying abroad. The four NBFCs are-

Eligibility criteria for students and co-applicants applying for an education loan without collateral

NBFCs seem to be more stringent and rigid in comparison to public banks when it comes to eligibility criteria for education loans. Since NBFCs accord abroad education loans to applicants and co-applicants without collateral, they lend loans to only those who meet their eligibility criteria. Some of the basic eligibility criteria laid down by NBFCs are: 

For students

  • The age of the applicant should be above 18 years.
  • The applicant should have secured admission into any master or PG level courses at reputed universities abroad.
  • The applicant’s academic profile has to meet the eligibility criteria laid by the lending NBFC.

Factors considered for students' academic profile by NBFCs before they lend unsecured abroad education loans to a student are: 

  • Secondary and Higher secondary certificates (Xth and XIIth) 
  • GRE, TOEFL, GMAT, SAT grades

For Co-applicants

The financial profile of your co-applicants is equally important when it comes to unsecured education loans from NBFCs. Some of the mandatory conditions set by NBFCs in India are as follows:

  • The co-applicant has to have a fixed source of income
  • Financial documents such as ITR, salary slips, and bank account statements are necessary. 

Apart from the above-mentioned criteria, NBFCs are also rigid about other factors of co-applicants profiles. It may vary from one NBFC to another. 

Also Read: Eligibility Criteria For an Education Loan Co-applicant.

But in a few cases, even after meeting the eligibility criteria, loan applications of students are rejected and NBFCs do not even state any reasons for the rejection of the application. 

Since we at WeMakeScholars work with all the NBFCs, students who apply for their education loans through us will not face such issues. The team will negotiate with the lenders and will get you the best deal. They will guide you through the entire education loan process. 

Things to keep in mind while borrowing an education loan without collateral

Before applying for an educational loan from NBFCs, a few factors to keep in mind are: 

  • Education loans without collateral interest rates
    In comparison with Government banks, NBFCs levy higher interest charges as the general bracket lie in the range of 11% to 14%. Generally, public banks set low-interest rates on education loans for study abroad. The interest rates quoted by NBFCs differ from country to country, so check with your lender thoroughly before you agree to borrow an education loan for study abroad. 
  • Maximum loan amount
    On average NBFCs permits a maximum loan amount of 40-60 lakhs for abroad education without collateral. The loan limits for abroad education loans differ from country to country. 
  • Moratorium Period and repayment
    In NBFCs, the loan applicants are required to start their first payment of the interest amount from the month following their education loan disbursement. The loan applicants can opt to pay the interest in full or partially. At the completion of the moratorium period, the principal amount can be paid in the form of EMIs. The moratorium period consists of the course duration plus 12 months after that. 
  • Maximum loan tenure
    The maximum loan tenure accorded by NBFCs for an abroad education loan without collateral is 10 years
  • Processing Fees
    NBFCs charge around 0.9-1% of the total loan amount as a processing fee with additional GST charges as the NBFCs charge slightly higher as compared to most Government banks.

Parameter 

Details

Interest Rates

11% to 13.5%

Maximum loan amount

up to 60 lakhs

Moratorium period

Course duration + 12 months

Loan Tenure

up to 10 years

Processing fee

0.95% to 1.5% on the loan amount

Pros of borrowing an education loan from NBFCs

  • Education loan for abroad studies without collateral
    NBFCs provide education loans for abroad studies without collateral which could be a sigh of relief to many students who want to study abroad and fund their higher education without pledging any collateral.
  • Faster and trouble-free disbursement of funds
    While applying for an unsecured education loan, students are not required to pledge collateral security due to which the disbursement process of a non-collateral education loan from NBFCs becomes much faster and trouble-free. The process in NBFCs does not exceed more than a week’s time as additional procedures like acquiring a legal opinion from a lawyer and getting the property evaluated are skipped. 
  • Less paperwork
    As there is no security involved for an education loan without collateral, the time utilized for paperwork that is to be done by the candidates and the bank is cropped from the procedure. Hence, this speeds up the entire process of disbursement.
  • Zero loan margin
    A non-collateral loan from NBFCs generally funds 100% of a candidate’s higher studies, so the loan margin comes down to 0% where the bank will afford your total expenses for your course duration.

Cons of borrowing an education loan from NBFCs

Most experts would suggest you think twice before approaching NBFCs to fund your higher studies abroad. Financing your education becomes a financial liability when you take a loan. Hence, it becomes extremely important to consider the following cons before you decide to take an education loan from NBFCs. 

  • Moratorium period is not payment free
    The major element which distinguishes education loans from other loans is the moratorium period. The moratorium period also known as the repayment holiday is the time during which applicants are not required to pay any additional payments toward their education. 

While public banks grant a payment-free moratorium period, NBFCs, ask for a payment of partial or full interest during the moratorium period.

  • Higher processing fee
    The processing fee in NBFCs is around 1% of the sanctioned loan amount. The fee is charged on the basis of the loan amount borrowed by the applicant.

For eg: If rs 40 Lakh is your sanctioned loan amount, and the processing fee charged by NBFCs is 1%, then 40,000/- (1% of 30 lakhs) + GST charges will be the processing fee.

  • Rejection of loan applications without any valid reason
    Few of the candidates face rejection of loan applications at the last moment. Not all NBFCs do this but few like Credila are known to reject loan applications at the last minute without stating any valid reason. 
  • Hike in interest rates without prior intimation
    Many students who had applied for abroad education loans through NBFCs have faced a hike in interest rates issues. Due to the revised norms by RBI in 2019, NBFCs had faced hefty financial distress because of which they raised education loan interest rates without prior intimation to the candidates.

Pros 

Cons

Unsecured education loan

No payment-free moratorium period

Faster Loan process

Higher processing fee

Less paperwork

Higher loan rejection

Zero loan margin

Higher / Hike in Interest

To conclude, we would recommend you to conduct thorough research of the market and then make a wise decision before approaching any lenders for an abroad education loan without collateral. 

Financing your abroad education loan could be tricky as it depends on the lender and their policies when borrowing an education loan without collateral. Our team at WeMakeScholars has assisted many students to fund their higher education abroad by extending the right guidance to students and avoiding glitches that can affect students’ futures. Connect with WeMakeScholars and our team financial officer will contact you soon.