A Guide To Education Loans Without Collateral 2023

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What is an Education Loan Without Collateral? 

A collateral-free education loan allows a student or their parents to borrow money from a financial institution such as a bank to pay for educational expenditures such as tuition, books, and living expenses without providing any collateral (e.g., land or assets) as security for the loan. In other words, it is an unsecured loan that is provided based on the borrower’s creditworthiness and capacity to repay the loan without any asset guarantee. This form of loan may be suitable for students or families who do not have assets to put as collateral or who do not wish to risk losing their property if they are unable to repay the student loan. 

Features of Education Loan Without Collateral

Some features of Education Loan without Collateral are: 

  • No collateral: You don’t need to put up any collateral or security for this loan, which means you don’t have to pledge any of your assets, like property or investments, to get it.
  • Loan amount: The amount you can borrow depends on the lender’s policies and your creditworthiness. Typically, you can get a loan ranging from a few thousand to several lakhs, depending on the program’s duration, institution, and course.
  • Interest rate: The interest rate for this loan is generally higher than that of a secured loan, but it varies by lender and depends on your credit score, income, and repayment capacity.
  • Purpose of the loan: You can use this loan to cover various educational expenses, including tuition fees, accommodation charges, exam fees, and other related expenses.
  • Repayment tenure: The repayment tenure for this loan is usually longer than that of a secured loan, and it can range from 5 to 15 years, depending on the lender’s policies and your repayment ability. 

If you want to know more about whether you should pay off your student loan early, read our blog. 

Benefits of Education Loan Without Collateral

Some benefits of education loans without collateral are:

  • Students can secure a loan of up to Rs. 40-50 lakh for their education without having to provide any collateral or security.
  • The loan can be availed before the start of the course.
  • During the moratorium period, the borrower is not required to pay any EMI payments.
  • The lender provides 100% financing for higher education. 
  • Students have the option to obtain top-up loans in addition to their education loans.
  • Prepayments on the loan are permitted without penalty for the borrower.
  • The loan’s repayment terms are variable and may be adapted to the borrower’s needs.
  • The loan application process is quick and convenient, with minimal paperwork required.

Eligibility Criteria

To be eligible for an education loan without collateral, students must meet the following requirements:

  1. The borrower’s annual income, after deducting liabilities and expenses, should be at least Rs. 4 lakh.
  2. The co-applicant must have a minimum CIBIL score of 700.
  3. For students planning to study in the USA, a GRE score of 300 or higher is required.
  4. For students planning to study in all other countries, an IELTS score of at least 6 or 6.5 bands is required.
  5. The applicant’s parents must own a residential house to be eligible for the loan.
  6. The loan cannot be availed for the following programs: pathway courses, foundation courses, integrated courses, UG degree or certificate courses, MBBS degrees, and pilot aviation programs.
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Documents Required 

Here are the documents that are typically required to apply for an education loan without collateral:

  1. Mark sheets of the last qualifying examination for school and graduate studies in India and abroad
  2. Admission letter from the educational institution, along with fee structure
  3. Proof of identity (such as passport, driving licence, PAN card, or Aadhaar card)
  4. Proof of residence 
  5. Income proof of parents or co-applicants
  6. Bank statements for the last six months of the borrower and co-applicant 
  7. Passport-sized photographs of the borrower and co-applicant

If the co-applicant is a salaried employee, the following income proof is required:

  • Income Tax Returns (ITR)
  • Form 16
  • Salary slips
  • Details of salary account

If the co-applicant is a business owner, the following income proof is required:

  • Income Tax Returns (ITR)
  • Profit and loss account
  • Balance sheet
  • Business registration certificate
  • Details of business current account

Top Banks Offering Education Loan Without Collateral

The lenders providing education loans without collateral can be divided into two categories: public banks and private student lenders. 

  1. Private lenders offer a larger amount as collateral-free education loans. Private banks can offer up to 40 lakhs of abroad education loans without collateral for abroad studies.
  2. Public banks have a limit of providing non-collateral education loans of up to 7.5 lakhs. Still, for top-tier institutes in India, SBI can provide up to 40 lakhs of unsecured education loans. 
  3. NBFCs are another option for Indian students, with four NBFCs in India providing education loans without collateral. The loan amount provided by NBFCs is decided based on the student’s choice of country. 
  4. Some foreign lenders can cover up to 80% of the total expenses with an interest rate ranging from 9.25-16%, which can be converted to INR at a rate of 14-15%, making it the most expensive education loan without collateral. It is important to consider the pros and cons of opting for an education loan for abroad studies without collateral before applying for one.

Other Types of Education Loan

Apart from education loans without collateral, there are other types of education loans that students can consider:

  1. Education loans with collateral: These loans require the borrower to provide collateral such as property, fixed deposits, or other assets to secure the loan.
  2. Federal Student Loans: Federal loans are loans provided by the government to help students pay for education-related expenses. 
  3. Skill development loans: These loans are designed to provide financial assistance to individuals who wish to pursue vocational or skill development courses.
  4. Loan for study abroad: This type of loan is specifically designed to finance education abroad, including tuition fees, living expenses, travel expenses, etc.
  5. Career development loans: These loans are provided to individuals who want to enhance their career prospects by pursuing advanced courses, professional certification courses, or executive education programs.
  6. Loans for vocational courses: These loans are specifically designed for individuals who want to pursue vocational courses such as diploma courses, certification programs, or other skill-based courses.

It’s important to consider all options available and choose the one collateral-free education loan that suits your financial situation and academic goals the best.

Securing an education loan without collateral for international studies can be a straightforward process, provided all the requisite conditions are met, and the necessary documents are furnished. To navigate this crucial step seamlessly, students can benefit from reliable student services that specialise in assisting with the application process, ensuring comprehension of the terms and conditions associated with collateral-free education loans for studying abroad. As an international student, it is crucial to comprehend the terms and conditions that apply to the chosen collateral-free education loan for studying abroad.