Self-Funding vs. Education Loan for Study Abroad

Self-funding vs education loan
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Self-Funding vs. Education Loan: Securing funding and working out how to pay for your education are important factors to take into account when thinking about studying abroad. Many students may not even contemplate flying overseas due to financial restrictions. Moreover, most parents believe that self-financing their child’s education through the sale of valuable assets or the arrangement of cash with friends and family is a more practical and viable option. However, student loans can be useful in this situation because not all families can receive this type of financial aid. 

You will receive a quick review of student loans and self-funding in this post, followed by a comparison of the two so you can determine which is the best choice for you. 

What is Self-Funding?

Self-funding is defined differently depending on the circumstance, but generally, it refers to people or enterprises who have enough cash in their bank account to cover all of their needs without taking out loans or looking for funding elsewhere.

The following situations might support self-funding:

  • Self-funding one’s education
  • seeking financial help from friends, family, or family
  • Getting money from a third party (excluding government banks or issuers of student loans)

Also Read: WHY CHOOSE INDIAN BANKS OVER FOREIGN BANKS FOR EDUCATION LOANS TO STUDY ABROAD? HERE ARE SOME MAJOR REASONS!

How Can You Self-Fund Your Education?

There isn’t much room for extra spending or savings if you are paying for your school on your own. You must therefore figure out a budget for your education, which you may accomplish with the aid of these resources.

  • Scholarships and Grants- A scholarship is a fantastic form of financial aid, and many colleges and governments of various nations provide it to international students.
  • Financial Plan – Before travelling to your study destination, you must create a budget and estimate your expenses. You must save aside enough money so that you can be ready for any financial challenges that might emerge while you are pursuing your education.
  • Part-time Employment – International students can find part-time employment that will allow them to do part-time jobs.

What is an Education Loan?

If you plan to study abroad, it is evident that you desire a high-quality education, but the expense is high. Additionally, students are turning to loans for financial support because it would be a risky move to use their parents’ entire savings to pay for their abroad education.

Also. you may make sure you have enough money to cover your living expenses and tuition by taking out a loan. This makes it easier to focus solely on your study by removing one huge headache.

Types of Education Loans

There are mainly two kinds of education loans. Let’s have a look at them one by one:

1. Loan with collateral or a secured loan 

Secured loans, often known as collateral loans, are loans made in exchange for collateral security. When a borrower pledges collateral in return for a loan, the lender will receive partial payment for any unpaid loan balance.

They have the right to sell the property and take the collateral if the payments are not made on time. Government and private banks are the best sources of collateral loans in India. 

2.  Unsecured loans or non-collateral loans 

Loans that don’t require any sort of collateral are known as non-collateral or unsecured loans. In this instance, the borrower is eligible to receive a loan without providing any collateral.

Students without the necessary assets to serve as security may choose to take out unsecured loans. However, factors including parents’ income, university standing, and fees, among others, are taken into consideration when choosing unsecured loans.

Also Read: HOW TO INCREASE YOUR CIBIL SCORE FOR BETTER EDUCATION LOANS?

Self-Funding vs. Education Loan

Take a look at this comparison between self-funding education and educational loans below:


Factors

Self-Funding

Education Loans

Financial Burden

Involves selling up all of your savings and valuable possessions, including gold, FDs, insurance, a home, land, and other things.

Repaying the loan on time allows you to save money and collateral.

Monetary Advantages

Not Available

A repayment vacation for students, lower interest rates, and government subsidies.

Proof of Funds

In order to confirm acceptance, the university requires a solvency letter from students. They must demonstrate to the university their ability to pay by displaying approximately one year’s worth of cash plus 50% extra.

As proof of finances, the bank provides a solvency letter.

Moratorium Period

Not Available

Taking out an education loan from a government bank can extend the repayment period up to 15 years

Large Funds Arrangements

It is almost impossible for students and their parents to arrange large sums of money in a short period of time when they plan and save for years.

The bank consistently distributes the correct sums. If a student needs to acquire a sizeable sum of money quickly, they can accomplish so by asking for a greater loan for their education against the value of their collateral.

Coverage of Various Expenses

Additional expenses such as rent, fees, food, etc., can be difficult to manage.

Rent, food, laptops, and other essential expenses are all included in the loan amount.

Currency Rate 

Students are stressed out by the fluctuating expense of schooling caused by growing inflation and shifting currency exchange rates.

These fluctuations do not affect education loans.

 CIBIL Score

It cannot be built due to the need for timely EMI payments. Parents, relatives, and friends are required to assist.

Can be strengthened by guaranteeing prompt loan repayment via EMIs.The student will be responsible for paying back the debt, which will reduce the burden on the parents.

Tax Benefits on International Remittances 

Students must pay 5% TCS on overseas remittances.

For payments over Rs 7 lakh, TCS is 0.5% on remittances backed by financial institutions.

FAQs

What does education abroad include?

The majority of the costs included in the Overseas Education Loan include tuition, books, living, and transport costs.

Can we apply for a loan even without having any real estate or other assets?

Most student loans for education are unsecured loans, which are good choices for students who don’t have the assets or security needed to get a secured loan. However, an unsecured loan can only be obtained if you have good credit.

What will the interest rate be?

The interest rates for overseas student loans range from 9% to 14% depending on the type of financial institution. Typically, private banks and NBFCs charge an interest rate that is 1% to 2.5% more than that of nationalised banks.

In most cases, taking out an education loan is advised for students rather than self-funding because education loans provide extra advantages. Due to escalating costs, students are having a hard time finding finances to complete their studies. In particular, during the pandemic, when the nation’s economy has been seriously impacted and students are struggling to pay for their education, this is a fantastic chance to take out an education loan.

This was all about self-funding vs. education loans. To know more about the education loan, and the best bank accounts for students or international money transfers, subscribe to Fly.Finance or reach out to our experts to help ease your study abroad experience.

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