In today’s globalised world, many young Indians hope to move abroad for their higher education. They dream of studying in world-class colleges in America or the United Kingdom or pursuing specialised courses in Australia or Germany. Although studying abroad is expensive, loans for students help young students achieve their academic aspirations.
If you want to take a loan for education, you have two options – secured and unsecured loans. Many students choose to provide collateral for their loans. However, not everybody has to ability to opt for a secure loan. Today, you can opt for a student loan without collateral from several lenders. Let’s learn more about these two types of loans and understand which one is best for you.
Start with the Basics – What Is Collateral?
Collateral refers to an item of value you give your lender for the loan duration. Most financial institutions prefer these secured loans since they can seize the collateral when borrowers do not repay the amount. For education loans, lenders accept residential property such as an apartment or house, fixed deposits assigned in favour of them by a registered deposit-taking organisation, life insurance policies with a surrender value equivalent to the required security coverage, or non-agricultural land.
What Is the Difference Between an Education Loan with Collateral and a Non-Collateral Education Loan?
Lenders prefer offering secured loans over unsecured ones. Let’s look at how the two loan types compare:
| Loan with Collateral | Loan without Collateral | |
| Loan Amount | Depends on the value of the collateral and can go as high as INR 1.5 crores | Depends on your family’s and co-applicant’s financial history and may get curbed accordingly |
| Interest Rate | Borrowers may enjoy favourable rates of around 10% | Without collateral, the interest could go to 14% |
| Eligibility Criteria | Not very stringent and depends largely on the value of the collateral | Lenders will evaluate your previous academic records and your family’s financial history before deciding |
| Documentation | Loans with security require a lot of documentation and verification | Non-collateral loans require less paperwork |
| Processing Time | Since collateral loans require more documentation, they also take longer to process | Unsecured education loans can get processed quicker, with some lenders offering fast-track sanctions in just 72 hours |
| Embassy Acceptance | All countries accept secured loans as proof of funds during visa processing | Some embassies may not accept unsecured loans as proof of funds, which may create issues with your visa application |
What Determines My Ability to Get an Education Loan for Abroad Studies Without Collateral?
Wondering whether you are eligible to get an unsecured education loan? Let’s look at the various factors you need to consider:
Lenders
Government banks do not offer unsecured loans for more than INR 7.5 lakhs. However, private lenders may offer loans up to INR 60 lakhs or more without security. Depending on the loan amount you need, contact various lenders to understand your options.
Eligibility Criteria
Every lender has a list of criteria potential borrowers should meet. Education-focused lenders require the applicant to be at least 18 and a citizen of India. They should have a co-applicant who works in India and has a bank account with cheque-writing abilities. Lenders may not approve an unsecured loan if the co-applicant does not have a good financial background.
Your Academic Profile
Lenders will evaluate your academic profile before deciding whether to provide an unsecured loan. They will favour students who perform well consistently or have improved over time over those who perform erratically.
The Course
Students pursuing job-oriented courses like medicine, law or business administration will likely get quicker approvals. Lenders evaluate your ability to secure a good job and repay the loan on time before approving your application.
The Institute’s Reputation
Lenders also evaluate the reputation of the institution you hope to attend. Most lenders have a list of approved or recognised institutions on their websites. You will likely enjoy quick and easy approvals for non-collateral loans if you apply for a loan to fund your course at one of these institutions.
Is an Unsecured Loan the Best Option for Me?
Deciding between a secured and unsecured loan depends entirely on your situation. A secured loan might be ideal if you can offer security and require a high loan amount. Conversely, you can opt for an unsecured loan if you do not have collateral and your co-applicant has a favourable financial history. If you’re worried about visa processing, you can choose an education-focused lender like Avanse. When you opt for an Avanse education loan without collateral, you will get a proof of funds certificate to ease your visa application process. Avanse also prioritises your needs and may offer high unsecured loan amounts after evaluating your application and background.
Understanding the difference between a secured and unsecured education loan allows you to make an informed decision about financing your higher studies abroad. Always check all the available options and find the ideal lender to help you fulfil your academic aspirations.