A 9 CGPA out of 10. 1550 SAT score. A chance to study medicine at Harvard University. Yet Deepanshu Sharma is anxious.
He’s indecisive about an education loan for abroad studies without collateral or one with collateral.
A collateral loan comes with a processing time of up to 20 days whereas a non-collateral education loan for abroad hikes the interest rate by up to 15%.
If you too are confused like Deepanshu, this guide will help you decide for yourself, how to answer the collateral vs. non-collateral education loan question. And that too in the next five minutes. The guide will offer data-backed discussions on:
- Maximum loan amounts with/without collateral; do they wary?
- Interest rates with and without collateral; how much will you pay?
- Visa acceptance rates; does the category of your loan influence this?
- Moratorium periods, do they differ for loans with/without collateral?
- FAQs that will answer your burning questions
Note: the information is true at the time of writing. That’s April 2022.
Collateral vs. non-collateral education loan — a step-by-step comparison
What is the maximum amount you can get for collateral/non-collateral education loans?
- Lenders offer up to Rs. 1.5 crores for collateral loans
- Lenders offer up to Rs. 50 lakhs for a non-collateral education loan for abroad
(Note: actual loan amount can vary depending upon the lender, your chosen university, course, and past academic records.)
Why the difference? Lenders hold on to the ownership deed of the collateral until the loan is paid off in collateral loans. Thus, if you fail to repay, lenders can sell the asset and retrieve the money.
However, lenders have no such safety net in non-collateral loans. Thus, they offer lesser loan amounts in these loans.
Collateral versus non-collateral education loans – Interest rates
The interest rates for both collateral education loans and education loans for abroad studies without collateral vary for each lender. Here are three examples of interest rates for collateral and non-collateral loans from leading lenders:
| Lender | Collateral loan interest rate | Non-collateral loan interest rate |
| ICICI Bank | 10.50% onwards | 10.75% onwards |
| HDFC Credila | 11% onwards | 11% to 12.5% |
| Avanse | 12.65% onwards | 11.75% to 16% |
Note: Actual interest rate varies depending upon the loan amount and tenure and the co-applicant’s CIBIL score, among others.
It’s a misconception that lenders always charge higher interest rates for non-collateral education loans for study abroad as they don’t have the security of the collateral. However, as you can see from the above-mentioned data, that’s not always the case.
When you search for your loan using FundRight, you can actually get a loan without collateral, and the lowest interest rate possible. That’s because on FundRight, you create your profile and then let lenders bid on your loan requirement. Where there’s competition, the customer wins.
There’s more. Among our lenders are international lenders who grant loans without collateral, and without charging a higher interest rate because of this.
Create a profile, receive bids from lenders, and choose one. From log-in to loan approval in 2 days – this is possible, with FundRight.
How does the loan affect your chances of getting a visa?
Every country grants visas for education loans with collateral.
However, there’s a misconception that non-collateral education loans for abroad could cause your visa application to be rejected. On an online forum, a user claimed their visa was rejected because of a non-collateral education loan.
However, the lender refuted the claim. Furthermore, we don’t have substantial evidence that the rumor is correct.
The chances of visa acceptance also depend on the university you chose and the course duration, among others. Unbiased advice can help. On FundRight, we have a team of education and financial advisors who handhold you through each step of getting an education loan and getting your visa approved. Write to us at grad@gradright.com to know more.
Collateral versus non-collateral education loans – moratorium
Lenders offer a moratorium period of 6 months to one year after your course for collateral loans.
A moratorium period is a time period when you don’t have to repay your principal loan amount or the loan amount interest for the duration of your course and a grace period after course completion. Lenders offer a grace period so you can finish your studies, get a job, start receiving your salary and then start repaying the loan with ease.
Thus, if you have a two-year course, you won’t need to pay for 3 years, i.e., two years of course and one year of the grace period.
Note: During the moratorium period the interest amount doesn’t get waived off but gets deferred. Thus, you must repay the accrued interest when your loan repayment begins.
However, you must start to pay the interest amount from the following month after taking the loan for non-collateral education loans for study abroad. You can begin repaying the principal loan amount after 6-12 months after the course is over depending on your lender.
Here’s a table to explain key factors:
| Criteria | Collateral education loans | Non-collateral education loans |
| Covered loan amount | Up to Rs. 1.5 crores | Up to Rs. 50 lakhs |
| Interest rate | Varies for each lender (Check the section on interest rates for a better idea) | Varies for each lender (Check the section on interest rates for a better idea) |
| Processing time | Up to 20 days | Up to 14 days |
| Moratorium period | Up to one year after the course
(The interest amount doesn’t get waived off during the moratorium period but is instead deferred. Thus, you must pay the accrued interest when the loan repayment begins) |
Interest payment from the following month after taking the loan
(You don’t have to pay the loan principal amount till 6-12 months after the course is over depending on the lender) |
Note: These numbers are approximate and can vary from case to case.
FAQs
1. What’s the difference between collateral and non-collateral loans?
Collateral loans are where you offer a tangible or intangible asset (house, fixed deposits, non-agricultural land) to a bank or a financial institution for getting loans.
Non-collateral loans are where you don’t need to offer any assets to get loans.
2. What’s collateral in a loan? How many types of collaterals are there?
Collaterals are tangible or intangible assets you must offer as security to the bank or financial institution to get loans over a specified amount. For example, public banks such as Bank of Baroda and State Bank of India demand collateral for loans over Rs. 7.5 lakhs.
You can offer two types of collateral:
- Immovable property: Flats, houses, non-agricultural lands (you must mention the boundary and layout specification)
- Liquid security: Fixed deposits, bonds, LIC policies
3. Which financial institutions offer collateral loans and which ones offer non-collateral loans?
All financial institutions including public banks, private banks, and NBFCs offer both collateral and non-collateral loans.
4. What are the covered loan amounts for collateral and non-collateral loans?
You can get up to Rs. 1.5 crores for collateral education loans. Furthermore, you can get up to Rs. 50 lakhs worth of education loan for abroad studies without collateral.
5. What are the interest rates for collateral and non-collateral loans?
Interest rates for both collateral and non-collateral loans vary from lender to lender. Check the section on interest rates to have a better understanding of the interest rates.
6. Is collateral better than non-collateral?
If you don’t have any collateral to offer, you must go forward with a non-collateral education loan and bear the slightly higher interest rates that lenders may charge. However, that’s not always the case and depends upon other factors such as loan amount and tenure and the co-applicant’s CIBIL score.
However, if you think you’d like to hold onto the rights of your assets and want a faster loan processing time, opt for non-collateral education loans.
7. What are the possible reasons for education loan rejection?
Lenders reject loans because they can’t afford NPAs (Non-performing assets).
Lenders may believe your loan can turn into an NPA for the following reasons:
Collateral or secured education loan:
- Incomplete paperwork
- The offered collateral is agricultural land or B-Khata property (in Bangalore)
- The lender isn’t satisfied with the proof of admission to the foreign college or university
Non-collateral or unsecured education loan:
- The university you’re getting admission to is ineligible for the loan
- The student has a poor past academic record
- The co-signer doesn’t have sufficient earning
- The co-signer is already paying EMIs for other loans
- The co-signer has a weak CIBIL score
Collateral vs. non-collateral education loan — which one should you choose?
The right answer, the winner of collateral vs. non-collateral education loans depends on your needs and preferences.
If you want to opt for higher loan amounts and lower interest rates, go for collateral loans. If you want a faster processing time and don’t have an asset to offer as collateral, go for non-collateral loans.
However, with FundRight, you can make the most informed decision by comparing bids from lenders. On FundRight, 13 lenders (more added each month) including banks, international lenders, and NBFCs compete for your loan. Thus, you’ll receive the best of terms and may even save on interest rates.
The two international lenders on our platform (more added each month) offer education loans for abroad studies without collateral without increased interest rates as well.
If you want more knowledge on collateral and non-collateral loans, write to us at grad@gradright.com to have a chat with our team of education and financial advisors.
