An education loan is the easiest way to finance your higher education. With various sources for getting an education loan, it is equally difficult to choose one that covers the cost without the need for collateral, as several borrowers are unsecured or ineligible as per the lender’s criteria. In this case, students can opt for an unsecured education loan from Indian lenders.
Below are some of the most frequently asked questions answered for students hoping to get an unsecured education loan
How to get education loan up to Rs 7.5 lakh without collateral?
The Government of India launched a Credit Guarantee Fund Scheme for Education Loans (CGFSEL) to help students get an education loan of up to Rs 7.5 lakh without any collateral or third-party guarantee. The Credit Risk Guarantee Fund Scheme provides a guarantee on education loans granted by banks under the Model Education Loan Scheme of the Indian Banks’ Association.
Students can apply for loan under this scheme if they belong to Economically Weaker Section (EWS) category and family income is less than Rs 4.5 lakh. Students are eligible under this scheme even if the amount of the loan they require is higher than the amount stipulated in it.
Features of this scheme that students should know:
1. Eligible students get a subsidy on the loan amount up to Rs 7.5 lakh.
2. The subsidy is valid during the course period and only during the moratorium period.
3. Students can only enjoy this grant once in their lifetime.
4. Applicants must present proof of income.
5. The credit institution may charge a maximum interest of 2 percent per annum above the base rate of the loans under this scheme.
How to get an education loan of more than Rs 7.5 lakh?
There are several lenders in the market that offer unsecured education loans for studying in India and abroad. Public sector banks offer unsecured loans only up to Rs 7.5 lakh. However, private banks and non-banking financial companies (NBFCs) have numerous unsecured loan products that cover the cost of education up to Rs 75 lakh.
Some salient features of unsecured loans:
1. Unsecured loans cover a wider range of courses, universities and countries than secured loans.
2. The interest rate starts at 10.5 percent, and can reach up to 14 percent.
3. Any student without collateral to pledge may apply for an education loan as long as they can agree to have a co-applicant co-sign the loan.
4. Almost all unsecured loans come without a holiday period. The interest charged during the study period must be paid by the co-applicant in whole or in part depending on the terms and conditions.
To be eligible for an unsecured loan, students must:
— Hire a co-applicant with sufficient income to take responsibility for the payment of interest/partial interest amount during the study period.
— Have a good academic record and be attending a university on the lender’s list of pre-authorized universities. These universities are pre-selected by the lender, based on employment opportunities after graduation.
Apart from this, the co-applicant must submit proof of income such as ITR for the last two years, bank statements and salary slips. If the co-applicant is self-employed, he will need to submit more business documents such as P/L statements and GST registration.
The process for applying for an unsecured loan is to approach a lender after conducting due diligence on the lender and the loan product. Complete the application form and submit the required documentation. Since these loans do not come with collateral requirement, the list of documents is short and so is the processing time.
Finding the right loan product confuses students as the market is flooded with lenders who promise to offer the best “unsecured” loan product on the market. Several marketplaces help students find the right product, offering end-to-end loan assistance. A dedicated loan advisor helps you navigate the loan process from choosing the right loan product to finally receiving the funds in the student’s registered account.
(The writer is the CEO and co-founder of GyanDhan)