Quality education frequently comes with a value surging swiftly with the passage of time. For instance, an MBA degree from ISB which used to price about Rs 26 lakh in 2016 has skyrocketed to Rs 40 lakh in 2021- an improve of 65 per cent in a span of just 5 years. Abroad education is also no exception. In such a situation, educational loans grow to be a assistance method for students unable to afford such astronomical expenditures.
How ought to you fund your larger education?
Education loan choices accessible for studying in India and abroad can be bifurcated based on the form of loan and lender. Lenders can be categorized into 4 sections – public sector banks, private banks, NBFCs, and option lenders like Prodigy Finance and GyanDhan, whereas the form of loans falls broadly into two brackets – secured loans (loan with collateral) and unsecured loans (loan with no collateral).
Public sector banks like SBI, Bank of Baroda, Punjab National Bank dominate the education lending market place. Lower interest prices, longer repayment periods, no repayment throughout the study period, and tax advantages are some of the things that make loans from public sector banks attractive. Banks demand collateral only for loans beyond Rs 7.5 lakh. Students in search of loans for admission into premier education institutions in India can get unsecured loans for larger loan amounts at low prices, beginning at 6.75 per cent in the case of Bank of Baroda. Experts say that public sector banks ought to nevertheless be preferred for overseas research if the applicant can provide collateral.
Ankit Mehra, Founder and CEO, Gyandhan, says, “In case one does not have any collateral to offer and the requirement exceeds Rs 7.5 lakh, unsecured loans from private banks, such as Axis Bank or ICICI Bank, could be the next choice. NBFCs typically charge the highest interest rate on loans, and are the last in the order of preference for education loans.”
He additional adds, “For context, if one is planning to pursue higher studies abroad, interest rates on secured loans from public sector banks start as low as 7.75 per cent as compared to the lowest interest rate offered by NBFCs which typically starts at 10.25 per cent.”
Factors to maintain in thoughts when taking an education loan
Experts say some of the things to be taken into consideration when picking out the proper lender are the nature of interest price (floating vs fixed), other charges, margin revenue, ease of processing and flexibility in loan terms becoming supplied.
Mehra says, “A fixed interest rate allows the borrower to repay the loan in fixed instalments as per the loan tenure while a floating interest rate is linked to the base rate offered by the lender and can vary over the life of the loan. This becomes critical when the interest rates are at their extremes in any cycle.”
The processing charge is an additional extremely critical element to take into account when comparing education loan solutions. One also requires to verify for other charges which includes late charges, pre-payment penalties, and other hidden charges.
Mehra additional adds, “APR (annual percentage rate) is typically used to compare 2 loans with different interest rates and fees. It gives a total cost of funds, including fees rather than just comparing the interest rate, which might be misleading. Consider 2 scenarios, lender A offers a 3-year loan at 11 per cent with no processing fees whereas lender B offers the same loan at 10 per cent but charges an upfront fee of 2 per cent. In this case, the second loan is costlier as the total repayments in the second case of Rs 118,232 will be higher than in the first case of Rs 117,946 assuming the loan amount was Rs 1 lakh.”
Another critical aspect to take into account is the margin of revenue. Margin revenue is the aspect of total expenditures that you will have to spend your self when the bank pays the rest of the quantity. Banks like SBI charge margin revenue of 10 per cent on their Global Ed-Vantage scheme when Bank of Baroda, beneath its Baroda Scholar Scheme for Study Abroad, does not charge any margin revenue for admission to Institutions beneath the list of premier institutions.
“NBFCs trump over banks, and private sector over public sector banks when it comes to ease of processing and offering specialized loan terms. NBFCs provide a significantly faster turnaround when it comes to loan processing,” says Mehra.
NBFCs can also cater to situations that wouldn’t match in a bank’s policy, even though it comes at the price of a larger interest price. However, note that public sector banks start off as low as 7.75 per cent compared to the lowest interest price supplied by NBFCs, which ordinarily begins at 10.25 per cent.