8 Things to Look at Before Applying for a Study Abroad Loan
When it comes to finding the right restaurant or a holiday destination, you go to great lengths to get to the right choice. But, when it comes to the most impactful part of your education – study abroad loan, you are afraid of choosing the wrong loan offer.
We have listed the critical assessment points below for you to make things easier.
- Study Abroad Loan Amount
Make sure your study abroad loan amount covers all your expenses. Students often assume that they don’t need a loan for their living expenses. And they can always choose to earn after moving abroad. Firstly, it is an assumption. There is no guarantee of securing an internship or part-time job. Secondly, banks do not approve any amount unless your entire financial requirement for you study abroad gets covered by savings, scholarship or through a loan. If you are considering a program that costs INR 60 lacs, and you request a loan of INR 35 lacs, banks expect you to show proof of funds for the remaining amount. Thirdly, you will want your loan amount to meet the visa requirements – covering at least 1.5 times of your total first-year expenses. You must go for your education in the most comfortable way possible, and compromising your study abroad loan amount would mean the opposite.
One of the biggest misconceptions of students is that they are afraid to ask for the right loan amount because they have to pay higher EMI in the future. Please note that you WILL NOT pay the EMI based on the loan amount you get approved. You will pay the EMI based on the loan amount you take the disbursement. If you get a loan approval of INR 45 lacs and you only used INR 20 lacs from your loan amount over the next two years. You will pay EMI only on INR 20 lacs – from the date of disbursement not from the time of loan application.
Not having access to funds can cause a lot of stress later on, hampering your education journey, so make sure you request an adequate amount of loan. If you want to discuss your loan amount, do it as early as possible. The loan amount you are eligible for can even add to your admission decision process. Call your financial advisor today (number present on your FundRight account) for any queries.
Rate of Interest
After you’ve assessed the study abroad loan amount, you should look at the top three lenders with the least rate of interest. Generally, public sector banks give the lowest rate of interest. Still, they are less flexible, very time-consuming in their process and require collateral for loan amounts exceeding INR 7.5 Lakhs. But, private banks and NBFCs offer more flexibility but a higher interest rate. Wherever collateral is not asked, banks assess the risk based on your destination, past academic profile and your co-applicant’s financial profile. Based on the profile details, the interest rate could be changing from one lender to the other and negotiated as well. Often when you move in groups, your interest rate comes down too! Make sure to check with your GradRight financial advisor about this.
- Processing Fee
It is not one of the primary factors while making a loan decision (as it’s a one-time expense), a lower loan processing fee is an advantage. Generally, the processing fee can vary from 0.5% to 5% of the loan amount based on your lender. Some lenders have fixed processing fees of INR 10,000. Based on your profile, you can also negotiate it. Utilising analytics to pitch your profile and get these discounts is possible. You should check your financial advisor before you pay. For all GradRight users, we have some exciting processing fee waive offs with certain lenders.
- Collateral vs Non-collateral
While giving education loans, banks will assess risk based on your academic or financial background and decide. In cases where banks are NOT confident about your profile for a non-collateral loan, banks may ask for collateral. Some banks only offer collateral-based study abroad loans like the public sector banks. Good collateral will bring down your interest rates by 1%-1.5%. A good collateral option may include apartments, plots in urban areas, fixed deposits. Nowadays, non-collateral loans are popular among students but many are not aware of this flexibility. Non-collateral options up to 75-80 lacs are available for your study abroad. If your study abroad loan requirement is more, collateral options will help meet that requirement. Collateral can back the entire loan or a partial loan. For example, you need INR 70 lacs of loan, and you can get INR 50 lacs through a non-collateral loan. We may be able to convince the lender to take collateral for the remaining INR 20 lacs. Note that the loan approval takes anywhere between 15 days to 45 days with collateral.
The payback period of the loan amount impacts the EMIs you will pay after the course completion. The longer the tenure, the lower the monthly EMI. But the longer the tenure, the more interest you will pay (cumulative over time). So it’s a trade-off between how comfortable you want your repayment to be and how much you are willing to repay. Make sure to find the right balance for you.
- Lender service
Don’t judge a bank by its initial loan offer alone. We recommend connecting with at least three lenders and discussing the options with your financial advisor. It is important to know how the process works and how friendly, honest and insightful the lender is. Having a conversation with the bank alongside your financial advisor will always give you a clearer idea about the offer. Sometimes, in the long run, a currently-appealing offer can turn out to be more expensive. Having multiple loan applications in an education loan is always suggested. If for any reason your profile gets rejected from one lender, you’ll always have a backup option. Did you know that we have a “true service rating” for each lender that is driven based on actual speed and investment they have towards servicing each student well?
- Tax Deductions
The government provides a tax benefit (under section 80E) for students taking an education loan for their higher studies. According to this, the interest paid in the first eight years of the repayment term will not be taxable. For example, if the co-applicant’s income is INR 8 lacs per annum and the interest on the loan paid that year is INR 2 lacs. The taxable income when the respective co-applicant files for the Income-tax is six lacs; it saves about 20% of 2 lacs, as per income tax slabs). Only some lenders are eligible to offer these tax deductions. Check out the offer details or reach out to the advisor on fund.gradright.com to know who can offer the benefit.
- Processing Time
Each bank has its own processing time. They vary anywhere between 1 day to 45 days. Public sector banks often take more time. All collateral-based loans will take more time as they involve more processing time. If a payment deadline is under 30 days, it is a good idea to always apply to more than three lenders. It is important to note that the banks will have higher processing times in the peak study abroad season: April to July. We recommend putting in your loan applications with the banks the week you start applying to the universities abroad.
At GradRight, we take the bold step to have lenders compete for you and strive to make lenders and study abroad loan processes work for you. Reach out to us at any time with any queries or feedback for your study abroad journey.
– From the team that built India’s first student loan bidding platform.