The Importance of Loan Insurance in The Education Loan Process
Borrowing an overseas education loan to fund higher education may sound like taking on a huge financial responsibility to a lot of you. Most students who consider the idea of funding their higher education abroad with a study abroad loan are often concerned about the repayment process. A lot of them are particularly concerned about who would repay the education loan in the wake of an unfortunate situation. In the abroad education loan process, the burden of repaying the overseas education loan falls on co-applicants if anything tragic happens to the loan borrowers. Having an education loan insurance in place could play a crucial role in unburdening the co-applicants of the affected education loan borrower.
Half-baked knowledge can be dangerous! This is true especially with respect to an overseas education loan process, of which most higher education aspirants have no complete knowledge of. Many students are under the impression that it is compulsory for loan applicants to purchase loan insurance. A lot of them reconsider their decision to borrow an overseas education loan, just by thinking about the overall cost of their education loan insurance. However, have you ever wondered how loan insurance could be crucial to the entire education loan process? This article aims to clarify certain myths about the same.
What is Loan Insurance? How is it Crucial To the Overseas Education Loan Process?
It is a well-known fact that most lenders only accept the loan applicant’s parents as their co-applicants for study abroad loans. This is true in the case of both secured loans, as well as an education loan without collateral. Purchasing loan insurance ensures that in the wake of an unfortunate situation, the burden of repaying the entire education loan amount with interest does not fall on the co-applicants. This can be a huge relief to the borrowers of government bank education loans, for which even retired parents are named as co-applicants. In the course of their higher education, if the loan applicant happens to encounter a misfortune which may likely lead to a terminal illness for the student, the entire education loan amount will be paid by the insurance company, instead of the co-applicants.
If you have already commenced your education loan process but are not sure about the particulars of buying an education loan insurance, do get in touch with the financial team of WeMakeScholars at the earliest possible instance for the right guidance.
Is it Compulsory To Purchase an Education Loan Insurance?
The requirement for an education loan insurance varies from lender to lender. When it comes to the abroad education loan process of government banks, it is absolutely not compulsory to buy an education loan insurance along with the study abroad loan. Most government banks leave it to their applicants to decide whether to purchase loan insurance under any of the education loan schemes offered by them.
Again, it is important to remember that students who have applied for secured education loans with government banks need not purchase an education loan insurance unless they want to. If your loan officer has been instructing you to do otherwise, request a callback from the WeMakeScholars Financial team today.
When it comes to the abroad education loan process of NBFCs and private banks, all applicants of an education loan without collateral have to purchase an education loan insurance. This is a mandatory requirement which every student who applies for an education loan without collateral is expected to fulfil. The main reason behind why NBFCs insist on the purchase of loan insurance is that none of them asks students to pledge any collateral security in return for an abroad study loan. So, if you plan on funding your higher education with the help of an education loan without collateral, you will be required to purchase an education loan insurance. Lets further discuss the overall cost of an education loan insurance scheme.
How Much Amount Do Lenders Charge as Loan Insurance Fee?
Government banks and private lenders of abroad study loans charge different loan insurance fees. In the case of secured education loans, government banks charge around 0.5% to 1% of the entire education loan amount as loan insurance fee. Government banks generally offer loan insurance schemes provided by their in-house loan insurance lenders. For example, SBI provides abroad study loan insurance through the SBI Rinn Raksha scheme. The SBI Rinn Raksha loan insurance scheme comes with its own set of benefits. Read till the end to know about one of the biggest benefits of purchasing loan insurance under the SBI Rinn Raksha scheme. As mentioned in the previous paragraph, it is not compulsory to purchase an education loan from government banks.
Coming to the education loan insurance fee charged by NBFCs and private banks for unsecured education loans, private banks charge about 1.5% of the total loan amount as education loan insurance fee while NBFCs charge close to 2% of the total abroad study loan amount as loan insurance fee. Purchasing an education loan insurance is a compulsory requirement of NBFCs for students because of the absence of collateral security.
If you are still confused about purchasing an education loan insurance or feel that you are being misguided about the same, reach out to our team at the earliest possible instance.
Payment Process To Be Followed For Purchasing Loan Insurance
After students finalize their decision to buy an education loan insurance, the next thing on their mind is whether there would be an immediate requirement of the loan insurance fees from the lenders. Well, here’s the good part. Candidates are not required to make a separate payment of their education loan insurance fees. These fees are adjusted with the total education loan amount availed by students.
For example, if you had applied for an education loan of INR 40 Lakhs and the loan insurance is calculated to be INR 50,000 then lenders calculate the approved loan amount limit as INR 40.5 Lakhs instead of INR 40 Lakhs. In this way, students do not have to worry about finding sources to fund their education loan insurance.
Another important part which all students need to know before purchasing an abroad study loan insurance is the fact that the loan insurance fees are directly proportional to the length of the education loan tenure. Lower the loan tenure, lesser is the loan insurance fees.
How Do You Benefit From Purchasing an Education Loan Insurance?
Borrowing any type of loan involves taking over a huge financial responsibility. This is especially true in case of an abroad education loan scheme. When students apply for an education loan to fund their studies abroad, the financial liability of repaying it automatically falls on their co-applicant/co-borrower, until and unless the student does not gain financial independence. In the wake of an event such as the loan applicant’s death, the responsibility of repaying the entire education loan has to be carried out by their co-borrowers
Apart from the fact that the SBI Life Rinn Raksha loan insurance scheme helps applicants with their education loan repayment, there is another hidden benefit. Students who purchase the loan insurance scheme at the time of applying for their education loans, get to avail an additional 0.5% waiver on their education loan interest rate.
Given the cost of any education loan process in the present circumstances, a waiver in the interest rate comes as a relief for many candidates. Not only does the SBI Rinn Raksha loan insurance scheme reduce the stress of your education loan repayment, but also contributes to reducing the overall interest rate. In order to know further about this benefit, do get in touch with the WeMakeScholars financial team.
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