As a matter of concern over skyrocketing prices on college 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, a large chunk of students prefer an education loan to study abroad. In order to obtain an education loan for higher studies in Government banks, applicants are required to pledge collateral of a specific value but what about the students who cannot afford to pledge any collateral as security? Students who cannot pledge collateral as a security can opt for an unsecured abroad education loan, also known as study abroad education loan without collateral from 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, and in what situation one is required to approach NBFCs. /852
What are NBFCs?
Non-Banking Financial Company or NBFC are permitted to manage transactions similar to a bank like lending loans, insurance, debentures, securities, etc but they do not hold a full banking license.
This also means that they are incapacitated to perform the following activities that banks can:
- NBFCs cannot accept Demand Deposits
- NBFCs cannot circulate cheques drawn on themselves
- NBFCs cannot indulge in Agricultural, Industrial Activity, sale-purchase, construction of immovable property, etc.
- NBFCs can provide banking services to people without holding a full-time banking license
Because of these restrictions, NBFCs majorly issue unsecured foreign education loans to students for studying abroad.
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. Since NBFCs accord abroad education loans to applicants and co-applicants without collateral, they only lend loans to those who meet their eligibility criteria. Some of the basic eligibility criteria laid down by NBFCs are:
- The age of the applicant should be above 18 years.
- The applicant should have secured admission into any Masters 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, scrutinized by NBFCs before they lend unsecured abroad education loan to a student are:
- Secondary and Higher secondary certificate (Xth and XIIth)
- GRE, TOEFL, GMAT, SAT grades
Since NBFCs accord educational loans without any collateral in India for students to study abroad, their co-applicants profile is examined thoroughly. The financial profile of your co-applicants is equally important when it comes to unsecured foreign 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
- In order to be deemed eligible for unsecured education loans from NBFCs, 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 profile. It may vary from one NBFC to another.
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. If you apply via WeMakeScholars, the team will negotiate with the lenders and will get you the best deal. They will guide you through the entire 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 nationalized banks, NBFCs levy higher interest charges as the general bracket lies 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 permit a maximum loan amount of 40 lakhs for abroad education without collateral to candidates. For the purpose of students’ higher education, if you apply to NBFCs via WeMakeScholars, you can get a higher loan amount of up to 50 lakhs.
Note: 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. On 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 six months after that. NBFCs may also extend this six-month period to a year, depending on your case.
- 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 processing fee with additional GST charges as the NBFCs charge slightly higher as compared to most nationalized banks.
If you are still unclear about certain points on foreign education loans without collateral, watch the 3rd episode of Loanflix -education loan without collateral. To know more options, do feel free to get in touch with our financial experts at WeMakeScholars by requesting a callback from our team.
Why NBFCs for education loans?
- 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.
- Flexible policies regarding the nature of courses
NBFCs have no mandates when it comes to the nature of the course. Most of the nationalized and public banks in India have a defined list of countries or universities for which they lend education loans. NBFCs generally consider the employability rate and credibility of courses and not the nature of their course.
- 100% coverage of total expenses
NBFCs do not usually set any loan margin for their borrowers which means banks will afford your total expenses of course duration.
Pros of borrowing an education loan from NBFCs
Unsecured education loans provided by NBFCs are quick and hassle-free as the procedure is not so time-consuming. As compared to nationalized banks and PSUs, securing an education loan from NBFCs is an easier process.
Factors which influence obtaining an education loan from NBFCs easier are:
- 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 to 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 towards their education.
a. Students who have borrowed an education loan, public banks often grant a payment free moratorium period. However, in NBFCs, the moratorium period is not payment free. Here, borrowers are required to pay interest for their non-collateral education loan rate of interest during the moratorium.
- Calculation of the interest amount charged during the moratorium period
In nationalized banks, the interest paid during the moratorium period is calculated on the simple interest basis whereas in the case of NBFCs students have to pay the partial interest and the balance interest is compounded by NBFCs at the end of each academic year. This becomes a financial liability on students as they end up paying a lot of money.
At WeMakeScholars, our team works persistently to ensure that our students get the appropriate end of any education loan scheme. So if you are seeking a noncollateral education loan, you can request a callback and our financial team will get back to you soon.
- Higher processing fee
In the case of NBFCs, the processing fee is 1% of the borrowed loan amount. The fee is charged on the basis of the loan amount borrowed by the applicant.
Rs 30 Lakh is your borrowed loan amount
Processing fee charged by NBFCs is 1%
Therefore - 30,000/- (1% of 30 lakhs) + GST charges
- 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.
At WeMakeScholars, our financial team has had the experience of tackling students who had to miss out on some crucial deadlines because of the rejection of loan applications at the last moment. So if you are also dealing with such a crisis, do feel free to request a callback and our team will contact you soon.
- Hike in interest rates without prior intimation
Many students who had applied for abroad education loans through Credila have faced 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.
To conclude, we would recommend you to conduct a thorough research of the market and then take 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 approximately 9000+ students to fund their higher education abroad by extending right guidance to students and to avoid glitches which can affect student’s future. Despite having done sufficient research, still confused? Connect with WeMakeScholars and our team financial officer will contact you soon.
Note: WeMakeScholars is an organization funded and supported by the Government of India and is associated with 10+ public/private banks/ NBFCs in India. We have helped millions of students by connecting them with the best education loan lenders across India. We have a dedicated financial team to assist you with any education loan related query. As we are Government funded, there is NO FEE charged for the services offered.