Business

Here's Your Guide to Non-Collateral Education Loans

August 27, 2018 05:37 PM

Higher education in India has evolved to be more advanced to meet world standards. Consequently, the cost of education has also increased. So, educational loans have been introduced like Bank of India education loanto support students aspiring to pursue higher education in various universities in India and abroad. Different Indian banks have tie-ups with universities and institutes to offer educational loans. The Reserve Bank of India (RBI) allows students to ask for an educational loan up to Rs. 10 Lakhs for studying within India and up to Rs. 20 Lakhs for studying outside the country.

Education Loan and Collateral Securities

An educational loan can be secured and unsecured i.e. loans granted with and without collateral securities. Collateral is the term given to different assets like immovable assets (house or land) and liquid assets (FD, shares and bonds) that a borrower can pledge as a security to the bank offering loan. If the borrower fails to repay the loan, the bank will seize the assets as a means to recuperate the losses. Also, to ask for education loans, you will need to meet the eligibility criteria, submit all the mandatory documents specified by the bank and be informed of the interest rate and tax benefits.

Do you always need collateral securities to ask for an educational loan?

No, you do not need collateral securities to ask for an educational loan. As mentioned earlier, an educational loan can be borrowed without pledging collateral security, but under certain conditions. Let us know what they are.

  • According to RBI guidelines, you do not need collateral security to borrow any amount up to Rs. 4 Lakhs as an educational loan from any nationalised or private bank in India.
  • All banks also have the provision to lend you an amount up to Rs. 7.5 Lakhs without collateral security, but with a third party guarantee. However, for any amount exceeding Rs. 7.5 Lakhs collateral security will be needed.
  • To avail education loans of higher amounts than Rs. 7.5 Lakh, you can opt to borrow from various Non-Banking Financial Corporations (NBFCs) in India, which lends up to Rs. 50 Lakhs without any collateral security.

NBFCs offering non-collateral educational loans

Various NBFCs in the country offer a non-collateral educational loan with different interest rates. Usually the interest rates for such loans are higher (11.5 % - 14%) than public sector banks (8.5% - 11%). Also, they can have a higher processing fee. Furthermore, they do not have any provision for any interest subsidy offered by the Government of India and may enforce penalties for pre-closure of any loan.

However, they have fewer regulations and more flexibility. As a result, there quite less paperwork involved. The processing and sanctioning time for a loan is also much faster than a bank. Moreover, they cover various courses under different universities and institutes around the globe, while banks may have limited coverage based on the course and location of the institute. There is also no upper limit for loan amounts and educational loans up to Rs. 50 Lakhs can be borrowed without any security.

Here are some well-known NBFCs that offer collateral-free educational loans up to Rs. 50 Lakhs.

Credila: Credila is a subsidiary of HDFC and has been offering loans since 2006. It was India’s first NBFC dedicated to Educational Loans. The current base rate of interest is 11.85%, which may change each year. The minimum amount you can borrow is Rs. 1 Lakh. The maximum loan tenure is 12 years and processing fee is 1% of the loan amount. The company also offers tax benefits under section 80E.

Avanse: Avanse is also an NBFC focused on Educational Loans. It was established in 2012 and is an associate of the Dewan Housing Finance Loan Ltd (DHFL). It offers specially customized loans like pre-admission loans and pre-visa loans. The current base rate is 11.5% and may change each year. The minimum borrowable amount is Rs. 1 Lakh and maximum loan tenure are 10 years. The processing fee is 1% of loan amount. The educational loans offered by Avanse also cover the cost of living, if it does not exceed 20% of the loan amount. The loans may also cover caution deposits and other fees up to 10% of the loan amount and travel expense for students travelling abroad.

Incred: Incred is an NBFC based in Mumbai that has been around since 2016. It offers housing loans, SME loans, personal loans and educational loans for students willing to study in India and abroad. The current base rate is 12% which may change each year. The minimum loan amount that is offered is Rs. 2 Lakhs and the maximum loan tenure is 15 years. The processing fee is 1% of the loan amount.

Auxilo: Auxilo was established in 2017 and they are especially dedicated to Educational Loans like many other NBFCs. The current base rate is 12.7% and the minimum borrowable amount is Rs. 1 Lakh. The maximum loan tenure is 10 years and the processing fee is 1% of the loan amount.

An international organization offering educational loans

Prodigy Finance is an international NBFC that has no upper limit for educational loans without collateral. They offer loans in U.S Dollars and charge an Annual Percentage Rate (APR). But there can be various downsides to borrowing from international NBFCs. So students and guardians should be well-informed before they apply.

How to apply for a collateral free educational loan?

The procedure to apply for a non-collateral educational loan is quite simple rather than loans with collateral. The steps are provided here to provide you with some guidelines.

  • Fill out an application form and submit it to the nearest branch of a bank along with all supporting documents as specified by the bank.
  • The bank will verify your application and documents and send it for processing.
  • After your documents are verified, the loan will be sanctioned.
  • After sanctioning of the loan, you have to sign the disbursement agreement.
  • Finally, after all the procedures are completed, the loan is disbursed.

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