Collateral-Free Education Loan for Abroad Studies - A Guide

You can get a collateral-free education loan for your study abroad easily. Private banks and NBFCs offer up to ₹1.25 crore without collateral, and public banks offer up to ₹40 lakhs as unsecured education loans. You will need to meet the required eligibility criteria and have an admission offer from an approved university. Factors like income, CIBIL score (685 & above), and applicant profile also affect the final interest rate. 

A collateral-free education loan for abroad studies allows you to fund your education and living expenses without putting any collateral at risk. Various banks and NBFCs offer an education loan without collateral for international education with different loan amounts, interest rates, and eligibility criteria. 

This guide explains who offers these loans, how much you can borrow, who qualifies, and how to improve your chances of approval.

What is a Collateral-Free Education Loan for Abroad Studies? 

An education loan for abroad studies without collateral, also known as an unsecured education loan or non-collateral education loan, is a type of credit offered by financial institutions, such as banks and NBFCs, to help students cover their educational expenses. An unsecured education loan, unlike secured loans, doesn’t require applicants to provide any collateral as security for the loan amount. 

Financial institutions offer these loans based on the income and credit score of the applicant and their financial co-applicant. Lenders also assess the eligibility based on the academics, the country, the course, and the university the student chooses to study. This is done to evaluate the future earning potential of the student and to check the loan repayment capacity of the student, as no collateral is involved.

Also Read:  Collateral Education Loan for Abroad Studies

What Is a Collateral-Free Education Loan for Abroad?

A collateral-free education loan does not require you to pledge any property, liquid securities, deposits, or other assets to secure a loan. It is also referred to as a no-collateral education loan, an unsecured education loan, or a non-collateral loan in different places. In this loan, the lender evaluates your academic profile, university, income, and credit history, or the co-applicant's, among other factors to provide an education loan rather than collateral. 

Collateral-free education loans have a higher interest rate and comparatively lower loan amounts because the lender carries a higher risk due to the lack of collateral.  In return, you get faster approval, and your assets stay safe.

The above-mentioned interest rates can vary based on various factors, including the repo rate, creditworthiness, and the lender. To know the exact interest rate you can get on an education loan, check your eligibility with us so that one of our experienced financial officers can connect with you to analyze your profile and provide you with the information. 

Can I Get an Education Loan to Study Abroad Without Collateral?

Yes, you can easily get an education loan to study abroad without collateral if you fulfill the criteria given by the lender. If you have an admission offer from an approved university and a strong co-applicant with a good income and stable credit history, you can opt for a non-collateral education loan. 

Course level, subject, and university profile play a huge role in getting an unsecured education loan. Private banks and NBFCs provide unsecured education loan options for undergraduate programmes at universities on their list. But they also give higher preference to postgraduate and STEM courses, as they lead to better career options and have shorter durations. On the other hand, public banks offer lower non-collateral education loan amounts but have fewer limitations for course selection.

Lenders Offering Abroad Education Loan Without Collateral

Key Conditions

• Co-applicant Income: minimum 3 INR-4 lakh per annum
• A minimum CIBIL score of 700 and above
• An average score of 60% in previous academics
• The university must be on the lender's approved list

Success Stories

Case Study: Aakash from Hyderabad secured a 45-lakh education loan without collateral from the State Bank of India (SBI) to pursue an MS in Computer Science at the University of Texas. His father's income of ₹9 lakh and his 88% in engineering were the key factors considered by the bank to offer this loan.

Comparison of Lenders Offering Unsecured Education Loans

Here is a comparison of unsecured student loans from different lenders:

Eligibility Criteria for Abroad Education Loan without Collateral

The following are the eligibility criteria required to get a foreign education loan without collateral.

1. Citizenship:

•  Both the applicant and the co-applicants have to be Indian citizens.

2. Academic Requirements:

•  Minimum 60% in previous academics, such as 10th, Inter, Graduation, etc.

• A good score on standardised tests such as the GRE, GMAT, etc.

3. Co-applicant Profile:

• Annual income must be above 3 lakh per annum

• CIBIL score of 700 and above

• Must demonstrate a stable income source

• Age - below 60 years

4. University and Course Requirements:

• The university should be on the lender's approved list

• STEM (Science, Technology, Engineering and Mathematics) courses are preferred

• Usually, studying in top countries is preferred

5. Age:

•  Students should be aged between 16 and 35

6. Additional Requirements:

• Valid passport
• Admission Letter
• No existing Loan default

Documents Required for an Education Loan Without Collateral

Since collateral is not involved in the loan, lenders thoroughly assess the documents required for unsecured education loans. The documents required to process a non-collateral education loan can vary by lender. The following are the required documents for an education loan without collateral.

1. Student Documents: 

• Duly Filled Loan Application Form
• Identity proofs such as Passport, Aadhaar card, PAN card, etc.
• Previous academic records, such as the 10th,12th, and UG marksheets.
• Applicable test scores, such as CAT, IELTS, TOEFL, and GRE.
• University admission letter
• Caste certificate for government schemes
• Passport-sized photographs

2. Co-Applicant Documents

• For Salaried Co-applicants
  • Last 3 months' salary slips
  • Form 16 or IT returns of the last 2 years
  • Bank statements(last 6 months)
  • Identity and address proofs
• For Self-Employed Co-applicants
  • IT Returns (last 2 years)
  • Business Registration Certificate
  • Bank Statements
  • Business address proof
  • CA certificate

These are the basic documents that lenders require to process an unsecured student loan. And as we have mentioned, the financial documents of the co-applicant vary depending on whether they are working or self-employed. 

Expenses Covered Under Education Loans Without Collateral

These loans are designed to help students afford higher education by covering various expenses associated with their education. The expenses covered can vary by lender. The various expenses covered under the education loan without collateral include:

1. Tuition Fees:

• Unsecured education loans can cover the full tuition fee or part of it, depending on eligibility.

2. Living and Accommodation Expenses:

• Non-collateral education loans cover the living expenses of the student, including their accommodation costs, such as hostel fees or rent, and food costs.

3. Travel Expenses: 

• These loans can cover travel costs such as flight tickets and transportation, depending on the lender.

4. Purchase of Course-Related Books and Equipment:

• They also cover the cost of purchasing study materials and course-related equipment, such as a laptop and other academic tools.

5. Insurance:

• When you take a foreign education loan without collateral to study abroad, it is mandatory to take health insurance. Hence, many lenders include health insurance in the expenses as part of an unsecured education loan.

6. Exam and Miscellaneous Fees: 

• Education loans without collateral also cover the various additional costs, such as payment of exam fees, caution deposits, and other miscellaneous expenses.

Note: The exact coverage varies from lender to lender, depending on the lender's policy and the eligible loan amount.

How to Apply for an Education Loan Without Collateral

The following is a step-by-step guide on how to get an unsecured education loan:

1. Initial Research: First, choose a bank according to your needs and requirements. 
2. Check Eligibility: It is recommended to verify whether your chosen university is on the bank's approved list or not. Use the Loan eligibility checker to check your loan eligibility.
3. Apply for the Loan: Go to the bank's website and fill out their application form for an unsecured education loan.
4. Submit the Documents: Prepare and submit the necessary documents for the loan application, such as proof of admission, KYC documents, and the co-applicant’s income proof documents.
5. Pay the Processing Fee: You must pay the processing fee to get your unsecured education loan sanctioned on time. After payment of the processing fee, the sanction letter will be granted to you.
6. Loan Sanction: After successful verification, the bank will approve the loan and issue a sanction letter with loan details such as the Loan amount, Interest rate, Repayment terms, and Moratorium period.
7. Sign the Loan Agreement: Carefully check all the terms and conditions mentioned in the loan agreement and sign it.
8. Disburse the Amount: After the loan agreement is signed, funds are disbursed to the university or the student's account, accordingly.

Education Loan Processing Timeline

Benefits of an Education Loan Without Collateral in India

1. No Need for Collateral: 

• These loans do not require applicants to pledge their properties, such as a house, land, fixed deposits, etc., to secure the loan amount.

2. Broad Range of Applicants: 

• These loans cater to the needs of students from all backgrounds and are available for both studies in India as well as abroad.

3. High Loan Amounts:

• Many lenders offer higher loan amounts for education loans for studying abroad without collateral. These funds can be used to cover various expenses associated with education, including tuition fees, living expenses, the purchase of books, and a laptop, etc.

4. Quick Process: 

• Unsecured loans are processed faster than secured loans, since there is no collateral in the loan.

5. Tax Benefits:

 Under Section 80E of the Income Tax Act, applicants can claim tax deductions on the interest paid on education loans for up to 8 years.

Countries Accepting Unsecured Education Loans

Below are the top countries accepting education loans without collateral:

Loan Repayment Options and Moratorium Period

Students need to verify the loan repayment options and the moratorium period before signing the loan agreement. An overview of the repayment structure is given below for students on moratorium education loans without collateral.

Pro Tips for Smart Repayment

• Paying interest during the moratorium period can reduce the overall interest burden.
• Prepayment without penalty is available with most of the lenders. Research thoroughly and choose the right lender.
• Choose low EMIs if not sure about job opportunities after studies.

Things to Consider Before Getting an Unsecured Education Loan

1. Moratorium Period:  

• Lenders offer a moratorium period of the course duration plus 6 months to 1 year for education loans. Public banks do not charge interest on the disbursed amount during the moratorium period.

• However, private lenders do not offer such an interest-free moratorium period to students. Yes, the EMIs start after the moratorium period, but during the moratorium period, students are required to pay either partial or full interest.

2. Processing Fee: 

• Private banks charge up to 1% of the loan amount plus GST, or a flat ₹15,000 plus GST. The processing fee can be 1% to 1.5% plus GST on the loan amount for the NBFCs and a minimum of 2% plus GST on the loan amount for the foreign lenders. 

3. Loan Insurance:

• It is not mandatory to have loan insurance with public banks, but it is compulsory for private lenders. It ranges from 1% to 2% of the loan amount for private banks and NBFCs. 

• It is important to keep in mind that the processing fees and the loan insurance with private lenders are negotiable. Students end up paying more when they approach these lenders on their own, and this can be avoided.

Common Challenges and How to Overcome Them

Apart from failing the eligibility criteria set by the lenders, there are some unwritten rules based on which lenders sometimes reject students' loan applications. The following are the common challenges affecting the chances of approval for unsecured education loans.

1. Field of Study:

• Private lenders do fund a UG program abroad if the university falls under the list; they prefer funding a PG program more, due to the course duration being shorter compared to a UG program.

• NBFCs, on the other hand, rarely fund a UG program abroad. They consider funding a UG course only if a student's financial co-applicant has an exceptionally good income source. Foreign lenders do not fund UG programs altogether.

2. Age of the Applicant and Co-applicant: 

• Yes, age matters for NBFCs. For students older than 30 years, NBFCs are hesitant to offer education loans. NBFCs won't accept the profile if your co-applicant is retired (pensioner or not) or about to be retired in 3 years. 

3. FOIR Norms:

• A fixed obligation-to-income ratio or FOIR norm is followed by the banks while lending loans. Private banks reject the loan if your co-applicant does not meet the FOIR norm, which means that the co-applicant's obligations, i.e., the EMIs, are higher than what they can afford. 

4. Missing Documents:

•  This is one of the main reasons why many loans get rejected. Proper documents are essential to assess the loan eligibility. Students can ask the respective lender to provide the document checklist. This will ensure students have all the necessary documents and make the loan process easy.

Which is the Best Lender for Education Loans Without Collateral?

The best lender for education loans without collateral depends on various factors, such as the student's profile, interest rates, repayment terms, etc. However, an expert recommendation based on previous loan sanctions is given below; students can compare and make an informed decision.

Public Banks

• They offer lower interest rates
• Repayment holiday during Moratorium
• Longest repayment tenure
• Lower Loan amounts and slower processing

Private Banks

• Higher Loan amounts
• Faster Processing
• Higher interest rates than public banks

NBFCs

• Highest loan amounts
• Flexible eligibility
• Fast approvals
• Higher interest rates than all other lenders

International Lenders

• No co-applicant requirement
• Fast processing
• International currency
• Higher interest rates, currency risk

An education loan sanction is crucial for funding the education of many students. However, students often struggle to get their loans sanctioned without the right guidance. WeMakeScholars can help you in such situations. Our team is dedicated to assisting students in receiving education loan approvals on time. We provide complete education loan assistance to students applying through us. Get in touch with our team today to get expert guidance and complete support for your education loan.

Get your Education Loan Approved today with WeMakeScholars

WeMakeScholars is an organisation funded and supported by the Ministry of IT, Government of India. Our team is dedicated to providing support to students applying for an education loan. We are partnered with more than 15 public and private lenders to help students get the best education loans according to their profiles. Here are the reasons why you should apply for an unsecured study abroad education loan through WeMakeScholars:

1. Easy Application Process: Applying for an unsecured education loan through WeMakeScholars is very simple because of its online document portal, where students can upload all of their documents in one place. 

2. Personalised Solutions: Our team of financial officers is well-experienced to give you the best guidance while processing your loan. They are dedicated to helping students get the most suitable loan according to their profile.

Our services don’t just end with loan sanction; we have a dedicated post-sanction team to help students resolve any issues they may face after their loan is sanctioned. 

3. Fast Process: Getting an unsecured education loan can usually take a month or even more. However, when you apply via WeMakeScholars, you will get your loan processed within 7 days from private banks and 15-20 days from government banks after all the required documents are submitted.

4. Customer Support: Even after your loan has been approved, we will assist you with the disbursement and repayment process right up to the last EMI payment.

5. Negotiation Support: When you apply for an unsecured education loan through us, we can negotiate on your behalf to bargain with the banks & lenders' team to get you the best interest rate and other loan terms.

6. Free of Cost: As WeMakeScholars is a government of India-funded initiative, supported by the IT Ministry under the ‘Digital India Campaign’, we offer our services free of cost to all the students.

Applying for unsecured study abroad education loans can be quite confusing, as various lenders offer diverse loan options. Get in touch with WeMakeScholars for a fast and simple loan process for education abroad, so that our team of experienced financial officers can help you obtain the best education loans for your studies.