Abroad education loan without collateral – NBFCs, Processing time & More!
In India, education loans are mainly divided into two separate categories on the basis of whether applicants need to pledge collateral security or not. The first category of education loans is secured loans or collateral education loans. Secured loans or education loan with collateral security is a kind of loan for which candidates are supposed to pledge collateral in different forms to secure an education loan. All major government banks require candidates to pledge collateral of a specific value, in order to secure an education loan for their higher studies abroad. To know more about how collateral education loans work, do go through our previous articles on this blog. The second category of education loans is unsecured education loans or an abroad education loan without collateral.
As the name goes, an abroad education loan without collateral does not require candidates to pledge anything as collateral security against their education loans. Candidates can borrow an abroad education loan without collateral from NBFCs (Non-Banking Financial Companies) in India. This article is going to cover all the important points related to borrowing an abroad education loan without collateral from NBFCs. Topics such as the definition of an NBFC, how they function with respect to education loans, in what situation is one supposed to approach an NBFC for their education loans, etc. will be covered in detail.
What are NBFCs?
As suggested by the acronym, a Non-Banking Financial Company or NBFC is authorized to conduct the transactions similar to a bank, like lending loans, insurance, etc. However, they do not hold a banking licence. This means that they cannot perform the following activities that banks can.
- They cannot accept Demand Deposits.
- They cannot issue cheques drawn on themselves.
- They cannot indulge primarily in Agricultural, Industrial activity, sale-purchase, construction of immovable property, etc.
- They can provide banking services to people without holding a banking licence.
All of the above points may have made it clear to you why NBFCs majorly provide unsecured education loans. Now let’s take a look at how NBFCs function with respect to education loans.
Basics of applying for an education loan without collateral from NBFCs.
Procedure-wise, unsecured education loans provided by NBFCs are easy. Securing an abroad education loan without collateral from NBFCs is an easier process when you compare them with the education loan procedure of nationalized banks and PSUs.
Some of the factors that make obtaining education loans from NBFCs easier are:
- Faster & easy disbursement: Since an abroad education loan without collateral does not require students to pledge collateral security of any kind while applying, the disbursement process of a non-collateral education loan from NBFCs becomes much faster. This means that the additional procedures like obtaining the legal opinion from a lawyer and getting the property evaluated by a competent authority are skipped. To sum it up, the disbursement of a non-collateral education loan from NBFCs does not exceed more than a weeks’ time.
- Less paperwork: In case of an education loan without collateral, where there is no security involved, the amount of paperwork which is to be done by the candidates and the NBFCs automatically comes down. Hence this speeds up the process as well.
- No Loan Margin: A Non-collateral education loan from NBFCs generally funds 100% of a candidate’s higher studies. This means that there is no loan margin set for education loan applicants by NBFCs.
General facts about borrowing an education loan without collateral
Some of the other important factors that you need to keep in mind before you apply for education loans from NBFCs.
Education loan without collateral interest rates: NBFCs levy higher interest charges in comparison with nationalized banks. The general bracket of interest charged by NBFCs lies in the range of 11% to 14%. The interest rates set by public banks for education loans are a way low. The interest rates quoted by NBFCs are different for different countries. So make sure that you check with your lender thoroughly before you agree to borrow an abroad education loan.
Maximum loan amount: On average, NBFCs grant a maximum loan amount of Rs. 40 Lakhs as abroad education loan without collateral to candidates for the purpose of funding their higher education. The loan limits for abroad education loan are different for different countries. However, you can get higher loan amounts of up to Rs.50 Lakhs, when you apply for education loans to NBFCs through WeMakeScholars.
Moratorium period and repayment: NBFCs require their loan applicants to start payment of the interest amount from the month following their education loan disbursement. This interest may be paid in full or partially. The principal amount can be paid in the form of EMIs on completion of this moratorium period. The moratorium period ideally consists of the course duration, plus six months after that. However, if you are to borrow an abroad education loan without collateral from NBFCs, they may extend this six month period to a year, depending on your case.
Maximum Loan Tenure: The maximum loan tenure granted by NBFCs for an abroad education loan without collateral is 10 years.
Processing Fees: The processing fees charged by NBFCs are on a slightly higher scale in comparison to most nationalized banks. NBFCs charge around 0.9 – 1% of the total loan amount as processing fees with additional GST charges.
Eligibility criteria for students and co-applicants applying for an abroad education loan without collateral
Since NBFCs majorly provide abroad education loans without asking for any security from their candidates, they only agree to lend loans to students and co-applicants who meet their eligibility criteria, which can seem to be more stringent in comparison to those of public banks. Some of the basic eligibility criteria laid down by NBFCs are:
- The student should be above the age of 18.
- The student should have secured admission into any Masters or PG level courses at universities abroad.
- The academic profile of the student has to meet the eligibility criteria set by the lending NBFC. The following factors of a student’s academic profile are scrutinized by NBFCs before they agree to lend unsecured education loan to a student.
1. High school marks (10th & 12th )
2. GRE, TOEFL, GMAT, SAT grades.
When candidates apply to NBFCs for an education loan for abroad studies without security, their co-applicant’s profile is examined thoroughly. The financial profile of co-applicants is equally important when it comes to unsecured education loans from NBFCs. Some of the mandatory conditions set by NBFCs in India for co-applicants are:
- The co-applicant has to have a fixed source of income.
- Financial documents such as ITR, salary slips and bank account statements are necessary in order to be deemed eligible for unsecured education loans from NBFCs.
Apart from the above criteria, NBFCs are also strict about certain other factors of a co-applicant’s profile. This varies from one NBFC to the other. In order to know your options, do feel free to get in touch with the financial team at WeMakeScholars by requesting a callback from our team.
Why NBFCs for education loans?
Education loan for abroad studies without security: The biggest selling point of NBFCs is that they provide abroad education loans without asking for any security from the student’s side. This can be a relief to a lot of students who apply for education loans to fund their studies abroad and who do not have collateral of any kind to pledge.
Flexible policies regarding the nature of courses: Certain nationalized and public banks in India have a defined list of countries, universities/colleges and courses for which they generally lend education loans. NBFCs, on the other hand, have no mandates when it comes to the nature of the course or the country to which the student has applied. For example, nationalized banks hesitate to approve loans for courses that are not considered to be mainstream, like arts, culinary courses, etc. NBFCs lend education loans to students despite the nature of their course, after considering the employability rate and credibility of such courses.
100% coverage of total expenses: Unlike nationalized banks, who set a loan margin for education loans, NBFCs do not state any loan margin for their borrowers. This means that the abroad education loan provided by NBFCs can cover almost 100% of your total expenses.
Under what conditions should you apply to an NBFC?
It is very important for candidates to understand how borrowing abroad education loans from NBFCs without any security might affect them in the long run. You may approach NBFCs if you fit the following criteria:
- If you do not possess collateral of any kind and there is no way for you to arrange for the same. In such cases, public banks also have an option where candidates can pledge a third-party’s assets as collateral against their education loan. We would urge you to explore this option as well before you approach NBFCs.
- If you have been deemed ineligible by most public banks for an abroad education loan.
- Despite you not having collateral security, it is essential that you fulfil the general criteria set by NBFCs which are listed above.
Cons of borrowing abroad education loans from NBFCs
If you ask for the opinion of most experts in the market, they would advise you to think twice before you approach NBFCs for an abroad education loan. Taking a loan to fund your studies is obviously a major financial liability. However, if you go about it carefully, this need not be the case. Hence it is extremely essential that you consider the following factors before you decide to borrow from NBFCs. Some of the major cons of borrowing an abroad education loan without collateral from NBFCs are listed below:
1. Moratorium period is not payment free: The biggest factor that differentiates education loans from other loans is the moratorium period. Ideally, the moratorium period refers to the time during which candidates are not required to make any payment towards their education loans. Public banks often grant a payment free moratorium period to candidates who have borrowed an education loan from them.
- NBFCs also offer a moratorium period to their education loan clients. However, this period is not payment-free as is the case with public banks. Borrowers are required to pay interest in their non-collateral education loan during the moratorium period.
If you have taken an abroad education loan without collateral from NBFCs or are considering borrowing from one, you need to keep this point in mind.
2. Calculation of the interest amount charged during the moratorium period: The interest paid during the moratorium period is ideally supposed to be calculated on the basis of simple interest. However, this is not the case with NBFCs.
- Most NBFCs, including all the notable ones currently functioning in India, often claim to calculate the interest during the moratorium period on a simple interest basis. However, this is not the case.
- This factor affects students the most when they avail of the partial interest payment option offered by NBFCs. When you are asked to pay partial interest, the balance interest amount is compounded by NBFCs at the end of each academic year.
- This compounding can amount to a lot of money. This can be a major financial liability for students. The 12th episode of our web-series, Loanflix, tells you exactly how NBFCs do this.
At WeMakeScholars, our team works relentlessly to ensure that our students get the better end of any education loan scheme. So if you are seeking a non collateral loan, you can approach our financial team to get unbiased opinion about the best viable option for your profile.
3. Higher processing fees: Public banks charge a fixed amount as processing fees. This is not the case with NBFCs. Their processing fees are charged on the basis of the loan amount borrowed by a particular candidate. For example, if you borrow a loan amount of Rs.30 Lakhs, for your higher education abroad, the processing fees charged by NBFCs is 1% of this amount, i.e. Rs. 30,000 + additional GST charges.
4. Rejection of loan applications without any valid reason: Not all NBFCs do this. Some of them, like Credila, is known for rejecting candidates’ applications in the last minute without providing any valid reason for their rejection. The financial team at WeMakeScholars has had the experience of tackling students who had to miss out on some crucial deadlines because their lending NBFC rejected their loans at the very last moment, so if you are in the middle of such a crisis, do feel free to get in touch with our team at WeMakeScholars.
5. Hike in interest rates without prior intimation: Many students who had applied for their abroad education loans through Credila, a subsidiary of the HDFC Bank Ltd, faced this particular problem. In recent times, as recent as February 2019, NBFCs had faced heavy financial distress due to the revised norms implemented by the RBI. In order to ensure their survival, many NBFCs raised their education loan interest rates without giving any prior intimation to their clients. When you apply to NBFCs, there are chances that this may happen in your case too. However, if you apply through WeMakeScholars, our team ensures that these glitches do not affect your future.
To conclude, we would recommend you to conduct a thorough study of the current education loan market before approaching any lenders for an abroad education loan without collateral. An abroad education loan without collateral is easy to get, however, rather than taking into account, only the shorter processing time, we would urge to consider some other aspects of borrowing non-collateral education loan from NBFCs. Funding your abroad education with an education loan without security can be tricky. It depends on the lender and their policies. Our team at WeMakeScholars has helped close to 1500 students fund their higher education by providing the right guidance regarding education loans. If you are not able to make a decision despite having done enough research, our team at WeMakeScholars is always ready to help.
Note: WeMakeScholars is an organization funded and supported by the Government of India that focuses on International Education finance. We are associated with 10+ public/Pvt banks/ NBFCs in India and help you get the best abroad education loan matching your profile. As this initiative is under the Digital India campaign, it’s at free of cost. The organization has vast experience dealing with students going to various abroad education destinations like the US, Canada, UK, Australia, Germany, Sweden, Italy, China, France among others