In our previous articles, we have mentioned how nationalized banks offer great schemes for abroad education loans. Just like there are two sides to a coin, despite the many benefits offered by them, nationalized banks require collateral for processing an education loan. Also, obtaining an unsecured education loan from a nationalized bank can be tedious. Nationalized banks are allowed to offer up to 7.5 lacs as an unsecured education loan, which is way too less for abroad education.
This is one of the main reasons why many candidates turn to NBFCs (Non-Banking Financial Corporations) for their unsecured education loan needs. To have a deeper understanding of how NBFCs provide unsecured education loan, what are the factors they consider, the interest rates offered, terms and conditions, please go through the video below. It is the 9th episode of the web-series "Loanflix- Abroad Education Loan simplified". Our experts at WeMakeScholars tell you the dos and don’ts of obtaining an unsecured education loan in a hassle-free way. This article is a summary of the episode, thus helping you grasp the unsecured education loan process better.
Why Choose NBFCs for an unsecured education loan?
NBFCs come to the rescue of aspirants who are not deemed fit for an education loan by a nationalized bank. The most common reasons are below:
- Under the RBI mandate, nationalized banks can offer only up to 7.5 lacs, which is not enough for abroad education.
- For 7.5 lacs or below education loan cases, nationalized banks have strict eligibility criteria and hence the process is tedious too.
- In the previous few articles on our blog, and in the Loanflix episodes, it has been repeated that although NBFCs do offer to lend huge amounts as education loans (up to Rs. 40-50 lakhs), their interest rates and terms are not as attractive.
This article will be your guide on how to obtain an unsecured education loan from NBFCs. The do's and don'ts while approaching an NBFC for an unsecured education loan. And all additional information about applying for an unsecured education loan with NBFCs.
Major NBFCs functioning in India
Primarily, there are four NBFCs (Non- Banking Financial Corporations) functioning in India. They mainly focus on lending educational loans. They are:
The above list has been compiled in the order of their age in the market. Our team at WeMakeScholars works with all of them, except HDFC Credila. We have stopped working with Credila due to multiple student issues in the past.
Factors considered by NBFCs for approval of unsecured education loan
Before clearing a candidate for education loan approval, NBFCs take certain factors into consideration. The following aspects of a candidate’s profile are considered:
- The candidates' academic details (10th, 12th, degree certificate, TOEFL, IELTS, GRE, GMAT, SAT grades)
- The co applicant’s income profile with proof (Salary slips, Income Tax Returns, CIBIL score, etc.)
- Location in India. This is because NBFCs do not operate in all cities within India.
- Chosen country for higher education.
All the above-mentioned factors have been covered in detail in our article titled, “Private Education Loan without Collateral – Must know basics”. These have also been demonstrated previously in the third episode of the web-series- Loanflix.
Unsecured Education Loan Terms
- Unsecured education loan interest rate: The Rate of Interest (RoI), the maximum amount for loan approval, etc. are the most researched aspects of any kind of loan. One needs to note that none of the above terms is constant when it comes to securing abroad education loans from NBFCs. These may vary depending on a candidate’s eligibility test scores, the chosen university, country, and most importantly, parents’ income.
To understand what this means, let us take a look at certain cases undertaken by the WeMakeScholars team:
Until three months ago, our team was able to deliver unsecured education loans of amounts up to Rs. 40-50 lakhs, with a rate of interest of 10.5%, for candidates aspiring to go to the US for further studies. Meanwhile, the interest rate for those candidates who did not have a strong profile (in terms of academics, chosen university, country, parents’ income) was pushed to as high as 12%.
- Current market scenario: In recent times, as recent as February 2019, due to revised RBI (Reserve Bank of India) norms, many NBFCs are struggling to raise capital in order to ensure their survival in the market. Due to this, the NBFCs that have managed to float despite the circumstances are monopolizing the loan market.
The interest rates for loans from NBFCs have also increased accordingly. Let us take a look at the country-wise interest rates charged by NBFCs:
- The US: Interest rates start at 11% to 12% for a loan amount of Rs. 15 to Rs. 25 lakhs. This may go up to 13%.
- Countries Other than the US (Germany, Australia, Ireland, Canada): The former interest rate for a loan amount of Rs. 15 lakhs to Rs. 25 lakhs was 12.75%. As of today, the interest rates are at 14% to 14.25% with no guarantee of a successful loan sanction.
From the above statistics, it is clear to most of you that now is not the best time to choose NBFCs as an option for an unsecured education loan. However, as it is stated in this article before, only go for NBFCs if one does not fit into the eligibility criteria of nationalized banks for unsecured education loans. Again, our team at WeMakeScholars has experience dealing with all the NBFCs stated above, and choosing us would help ease your journey towards a better educational experience.
Additional information for a beginner
If you are only thinking of applying for an unsecured education loan to fund your higher studies, here are a few points which you must remember before beginning the unsecured education loan process.
- NBFCs charge a processing fee, which is to be paid after a provisional approval of the loan is granted. This fee amounts up to 1% of your loan amount, plus GST. It may go up to 1.5% + GST.
- It is mandatory for the applicant to take loan insurance. The loan insurance fee is adjusted in the loan amount. It is a one-time payment fee, which is about 1% to 2% of the total loan amount sanctioned.
- Unlike nationalized banks, NBFCs do not grant a repayment holiday to their applicants. They mostly ask applicants to start repaying the loan amount from the beginning of the course. NBFC candidates may repay the loan with full simple interest or partial simple interest, with monthly payable amounts ranging anywhere between Rs. 2000 to Rs. 25000.
Why do applicants opt for NBFCs?
Applicants who choose NBFCs for their unsecured education loan needs are mostly the ones who are not deemed eligible by nationalized banks for loan approvals. However, this may not be the only reason that makes NBFCs a more attractive option for prospective candidates. The following reasons also compel candidates to turn to NBFCs, rather than approach nationalized banks.
- Faster processing time: If a candidate applies for an unsecured education loan to any NBFC through WeMakeScholars, the processing time will not exceed four to five days. This procedure can be done in the comfort of your home as it is to be done online.
- Easy disbursement of education loan: Unlike nationalized banks, NBFCs never ask for details on how the loan amount is going to be used. They will immediately disburse the loan amount.
- Less Paperwork: Most candidates who need to avail unsecured education loan approach NBFCs. As there is no collateral involved, there is minimal paperwork involved.
- No Loan Margin: NBFCs do not impose any loan margin on the total loan amount. Hence, the candidates do not have to provide proof of any funds. This system has been adopted by nationalized banks too.
Why apply through WeMakeScholars?
Through last year, our team at WeMakeScholars has processed more than 15000 applications through NBFCs. Most applicants chose WeMakeScholars because of their trust in our ability to make procedures transparent. Every minute detail is explained to prospective candidates by our financial officers from the beginning. Our main goal is to give a clear picture of any education loan scheme for our students.
Generally, private money-lending companies try to attract candidates by mentioning only positive points of a loan scheme. WeMakeScholars is a Government-funded initiative by the Ministry of IT. Our financial officers make sure that the students are well-informed about the pros and cons of terms and conditions related to any loan scheme that they opt for.
The financial officer assigned to our candidates ensures that every step involved in the application process for any kind of loan from any money-lending firm; be it a nationalized bank or an NBFC, is made clear in the very beginning.
You get a 0.5% discount in the rate of interest when you process your unsecured education loans via WeMakeScholars. Our financial officers will also negotiate the loan terms on your behalf. Many of our students have received their unsecured education loan at reduced interest rates. You can get an idea about the same when you go through various testimonials written by students, who sanctioned their education loan through us.
There are several cases when financial officers at WeMakeScholars have helped candidates when NBFCs have failed to do so. If a candidate is stuck at any point of the loan procedure, our team will guide them through it. There have been instances when NBFCs have denied a loan to candidates after charging them with processing fees. In such cases, the NBFCs deny candidates their refund, and the applicants end up losing at least Rs. 30,000-40,000. Our team ensures that the NBFCs associated with us do not deny such refunds and our applicants get it back soon. If they fail to do so, strict action will be taken against such NBFCs.
As mentioned in the article, we are an initiative funded by the Ministry of IT, Govt. of India. This gives us an upper hand on the procedures of a loan scheme when interacting with banks/ NBFCs, which helps our candidates in successfully obtaining loan sanctions with the best terms.
Note: WeMakeScholars is an organization supported by the IT Ministry, Govt. of India. As it is an initiative under the Digital India campaign, there is NO fee charged for the services offered by them.
We hope this article has equipped you with sufficient information regarding unsecured education loan from NBFCs. However, despite all that is mentioned here, there is always a hack for any procedure that comes in handy. The hack for this episode is about filing the Income Tax Returns (ITR) if you didn't do it before. As banks usually ask for 2-3 years ITR, few parents may not have filed it. What can be done in such cases? Unlock this hack directly from our episode. Also, follow all our Loanflix episodes on YouTube without fail. I'm sure you'll never find such informative content around education loans.
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 is 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