FAQs on Collateral-free Education Loans

FAQs on Collateral-free Education Loans
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FAQs on Collateral-free Education Loans: Education loans to study abroad are easily accessible these days and students can easily avail them to pursue any course in a foreign university. Many Indian students rely on education loans to fulfil their academic aspirations. While taking a loan, it’s often a dilemma that which type of loan should be taken -secured or unsecured. In this blog, we’ll address the frequently asked questions (FAQs) surrounding collateral-free education loans for Indian students aiming to study abroad.

What is a collateral-free education loan?

A collateral-free education loan is a type of education loan that allows students to borrow funds for their education without pledging any collateral or security. It is also known as an unsecured loan. For collateral-free education loans, the interest rates are comparatively high. Mostly, the private banks and NBFCs provide collateral-free education loans of bigger amounts. The government banks in India are allowed to provide collateral-free education loans of up to INR 4 lakhs. 

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Who is eligible for collateral-free education loans?

Indian students planning to pursue higher education abroad at recognized institutions are generally eligible. Loan approval often depends on factors such as academic performance, course credibility, and the borrower’s financial background. In a collateral-free education loan or unsecured loan, the total monthly income of the family is a major factor. 

What are the interest rates for collateral-free education loans?

Interest rates can vary among lenders. Usually, the public sector banks offer lower interest rates compared to private banks. Also, for unsecured or collateral-free loans, the interest rates are usually high and can range between 11% to 15% subject to terms and conditions. The rates are also influenced by factors such as the loan amount, tenure, and the borrower’s creditworthiness.

Is a co-applicant required for collateral-free education loans?

Yes, most lenders require a co-applicant, usually a parent or guardian, to provide additional security. The parent or co-applicant will be considered as the primary lender for education loans. In case you fail to pay, the co-applicant will be liable to repay the entire loan amount. However, some private NBFCs provide education loans without co-applicants. 

Are there any processing fees for these loans?

Yes, lenders usually charge a processing fee for handling the loan application. It’s advisable to check and compare these fees among different banks before applying. Banks may charge up to 5% processing fee and it will be deducted from the total loan amount during the education loan disbursement.

What is the repayment tenure for collateral-free education loans?

Repayment tenures can vary depending on the amount of loan, monthly income, course duration etc. For education loans to study abroad, banks allow a maximum of 15 years of repayment tenure to provide the borrowers flexibility in choosing a repayment schedule that suits their financial situation.

Can the loan cover all expenses, including living costs?

Yes, collateral-free education loans often cover tuition fees, accommodation expenses, travel costs, and other related expenses. Some banks also cover the cost of buying a laptop for educational purposes, a two-wheeler for commuting to college, lab fees, study tour fees etc. Ensure you calculate the total cost of your education and request a loan amount accordingly.

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How is the Education loan disbursed?

Education loan is usually disbursed directly to the university to cover tuition fees, accommodation expenses etc. Other types of covered expenses, such as living expenses, are often disbursed directly to the student’s bank account. 

Can the loan cover pre-admission expenses like application fees and exams?

Before the university acceptance letter, banks and financial institutions will sanction the loan but it will not be disbursed. You will not get any amount for pre-admission charges like application form charges. However, some lenders do include pre-admission expenses in their loan coverage and they may reimburse that amount along with the loan. Read all the loan-related terms carefully before applying for the same.

Is there a moratorium period before starting the repayment?

Yes, most lenders offer a moratorium or grace period, allowing students time to complete their education before the repayment begins. This period may vary, but it typically ranges from 6 months to a year after course completion.

What happens if I face difficulties in repaying the loan?

If you encounter difficulties in repaying the loan, you can ask your bank/lender for an education loan restructure. Many institutions offer options like loan restructuring or revised repayment schedules to ease financial burdens during challenging times. Discuss these things with your lender immediately as education loan default will impact negatively on your credit score.

Is there an option for loan repayment?

Yes, most lenders allow borrowers to prepay their education loans without any prepayment charges. This can be a beneficial option if you come into funds and want to reduce your overall interest burden. In India, most of the banks don’t have any early repayment charges on education loans. 

What documents are required to apply for a collateral-free education loan?

While document requirements may vary, common documents include proof of admission, academic records, KYC documents like an Aadhar card and PAN card,  income proof, copy of a Visa approval letter etc. Check with your lender for a comprehensive list.

Are there any tax benefits associated with education loans?

Yes, under Section 80E of the Income Tax Act, interest paid on education loans is tax-deductible. Ensure you retain all relevant documents to avail of this benefit during the income tax filing process.

Collateral-free education loans provide an easy gateway for Indian students aspiring to study abroad. Understanding the factors of these loans is important for making informed decisions.

To know more about the loan application process, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience. 

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About Shekhar Suman

Shekhar is a versatile writer with a passion for sharing knowledge and creativity. With expertise in crafting informative blogs on study abroad and finance, Shekhar helps readers navigate the complexities of education and financial planning. Most of his writings blend the practicality of finance and the beauty of language, making a meaningful impact in both spheres. Beyond his professional pursuits, he finds solace in the writing Shayari.

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