The demand for higher education opportunities in acclaimed global universities is quite high among Indian students. But the rising cost of education abroad often creates a hurdle for Indian students who want to pursue higher studies overseas. This has resulted in the advent of lending institutions ready to extend financial assistance to students. Today Indian students can seek education loans to study abroad from multiple lending institutions.
These include private and public banks in India, non-banking financial companies (NBFCs), and international lenders. However, there are several differences between taking an education loan from Indian lenders and doing so from international lenders.
As a first-time education loan seeker, knowing the differences between Indian loans and international loans can help you make an informed decision. We will discuss them below. But first, let’s understand a few basic things about education loans or student loans in India.
Categories of Student Loans in India
Secured loans are education loans with collateral. To avail of this loan, the student or a co-applicant has to provide a guarantee to the lender in the form of property, fixed deposits, insurance policy, government bonds, etc. These loans have comparatively lower interest rates and are easily granted.
Secured loans are mainly offered by public banks, private banks, and NBFCs for loans exceeding a certain amount. For instance, most public banks in India demand collateral security for granting education loans over INR 7.5 lakhs.
Unsecured loans are non-collateral education loans. These loans require no security or guarantee to be pledged to the lender. The eligibility for a student loan under the unsecured category can depend on several factors, such as the program, country, CIBIL score of the co-applicant, etc.
For instance, most lenders are willing to grant unsecured student loans for the UK, USA, Germany, Ireland, and other well-known education destinations. But they may not do so easily for a lesser-known destination. Education loan without collateral have higher interest rates but takes less time to process.
Unsecured loans are majorly offered by private banks, NBFCs, and international lenders, such as Prodigy Finance, MPower Financing, etc.
Types of Student Loan Providers in India
Indian lenders include financial institutions such as government banks or public banks, private banks, and NBFCs. Such institutions function within the perimeter of the rules and regulations set by the Indian Government or the Reserve Bank of India.
Some of the major Indian lenders are the State bank of India (SBI), Bank of Baroda (BoB), Punjab National Bank (PNB), Axis Bank, HDFC Credila, and Avanse.
International lenders include fintech platforms and lending institutions. Such lenders may or may not function according to the banking rules and regulations set by the Indian Government or the Reserve Bank of India. Additionally, the interest rates charged by these institutions may not be within the jurisdiction of the Government of India or Indian regulators.
Some of the major international lenders are MPower Financing, Prodigy Finance, and Nomad Credit.
Differences Between Indian Loans and International Loans
The interest rate for education loans is one of the first things to consider when deciding between Indian and international loans.
Normally Indian lenders calculate study loan interest rates for overseas education based on MCLR (Marginal Cost of Funds Based Lending Rate) plus a spread. The MCLR depends on the base lending rates of the RBI. The spread is a percentage added by banks to the MCLR value.
Most international lenders calculate education loan interest rates based on LIBOR (London Interbank Offered Rate). LIBOR refers to the average interest rate determined from the estimates given by the top banks in London.
- The interest rate for education loans by public banks in India falls from 8% to 10.5%.
- The interest rate offered by private banks and NBFCs for unsecured education loans lies in the range of 11.5% to 15.5%.
- The interest rate offered by international lenders for education loans lies between 9.25 % to 16.00%.
Interest Rate Parity
Interest rate parity is the link between the fluctuation of currency values and interest rates. While Indian lenders lend a loan in Indian rupee (INR), international lenders generally do so in US dollars (USD). Currency fluctuation can impact the interest amount you have to pay for your education loan.
A simple thumb rule is that if you take a loan in USD at a 10% interest rate, it will be equivalent to about a 15% interest rate on loan taken in the Indian rupee.
As an example, consider two student loans. One of them is availed from a private bank in India at a 15% interest rate. The other is availed from an international lender at a 12% interest rate. Though the interest rate of the private bank loan is higher, the interest amount paid on this loan will be comparatively lower than that on the international loan due to a difference in the currency value of the loans.
The processing fee for Indian loans varies from lender to lender and from scheme to scheme. Some loans are available at zero processing fees, while others have a nominal charge ranging from 0.2% to 2%.
For instance, SBI charges zero processing fee for student loans up to INR 20 lakhs and a flat rate of INR 10,000 plus taxes for loans above INR 20 lakhs. Axis Bank charges INR 15000 plus taxes for student loans up to INR 20 lakhs. The bank charges 0.75% plus taxes for an above INR 20 lakhs loan.
For international loans, the charge for the education loan process often varies from 2.5% to 5% of the total amount.
Suppose you need INR 60 lakhs as a student loan for Canada. To avail of an international loan at 2.5%, the processing fee will be INR 1,50,000. But if you take the same loan from a public bank in India, such as SBI, you will have to pay just INR 10,000 as a processing fee.
Total Loan Amount
The maximum education loan you can get from public banks in India is INR 1.5 Cr, offered by SBI. Private banks and NBFCs generally offer a maximum loan of INR 50 lakhs.
When it comes to international loans, the maximum loan amount can depend on the program and the university.
For instance, you can seek up to 100% of the university expenses and your living costs from Prodigy Finance for a student loan for the USA.
Repayment of Loan
Indian lenders, i.e., public banks, offer students taking higher education loans a moratorium period of six months to one year after completing their course. The students can begin paying the EMI to repay the education loan after this period. However, Indian NBFCs and private banks partially require students to pay the interest during the moratorium.
Students have to begin paying the interest from the next month after the first disbursement for international loans.
When Should You Consider Refinancing an Education Loan?
Refinancing refers to replacing your existing loan with a new one that comes with better features. Moreover, you can consider refinancing your student loan in several situations, such as:
- You want a loan with a lower interest rate.
- You can qualify for a better interest rate based on your improved credit score.
- You have multiple loans that you want to combine into a single loan.
- You want to increase the tenure of your student loan.
Select ForeignAdmits for the Best Education Loans
Getting an education loan can be a complex and time-consuming process. Whether you want a secured loan or an unsecured loan, ForeignAdmits can help you to get the best education loans in a short turnaround time. All you need to do is apply for a student loan online by filling out a single application form.
With expert tools like Loan Finder, Loan Eligibility Calculator, Budget Estimator, EMI Calculator and Co-Applicant Checker, we will guide you through the entire loan process. We will ensure that you can select the best possible interest rate from the loans offered to you. Get in touch with us today to know more about applying for student loans online.
At ForeignAdmits, we understand how important this decision is. We are here to help you every step of the way, from finding the right school to getting admitted and securing scholarships.
ForeignAdmits have a team of experienced counselors who can provide you with customized guidance based on your individual needs contact us today to get started. We look forward to helping you achieve your educational and career goals!