Education Loan for Abroad Studies Without Collateral: Interest Rates, Eligibility and Process

Collateral is an asset ( immovable property, FDs, Mutual Funds, Bonds, etc) that is pledged by the borrower when taking an education loan with collateral. The bank makes use of this collateral to raise money in case the education loan becomes an NPA. The collateral acts as a security for the loan amount. The value of the collateral being pledged should be equal to or greater than the loan amount being requested. Most nationalized banks, private banks, and NBFCs ask for collateral when sanctioning loans above INR 7.5 lakhs. 

A large number of students do not have collateral that they can pledge for a secured education loan. In such a case, their best bet is an unsecured education loan. 

Also called an unsecured education loan, these do not need the borrower to pledge any collateral when applying for an education loan. Some salient features of an international education loan without collateral are as follows:

• These loans have a slightly higher rate of interest. Depending on the lender, the RoI can be higher by 1.5% to 4% than a secured education loan. 
• A co-applicant, preferably a parent with an income, is required when applying for this loan. 
• These have a shorter repayment duration than secured education loans.
• The borrower has to make some form of repayment - either partial or full - during the period of study. 
• These loans are riskier for the lenders and thus are more difficult to get approved when compared to a secured education loan. 
• However, since there are no collateral documents that need to be verified by the lender, they are also sanctioned faster than secured education loans.  

There are a few private banks and NBFCs that offer education loans without collateral for loan amounts higher than INR 7.5 lakhs. Some of them are as follows:

• Axis Bank - This private bank offers international education loans without collateral for up to INR 40 lakhs. The unsecured education loan from Axis Bank has an interest rate between 11.25% to 13%. The loan tenure for unsecured loans is 20 years. 
• ICICI Bank - This is another leading private bank that offers education loans without collateral for up to INR 40 lakhs for selected programs and institutes. The rate of interest for unsecured education loans from ICICI Bank starts at 10.75%. The loan tenure is between 10 to 12 years for a post-graduate program. 
• Avanse- a leading NBFC, also sanctions international education loans without collateral. It provides international education loans without collateral for amounts up to INR 40 lakhs with a loan tenure of 10 years. Depending on the student profile, this amount can also go up. The rate of interest for this loan is between 12.65% to 16%. 
• InCred- another top NBFC, also gives unsecured education loans up to INR 40 lakhs. Here too, the loan amount can be increased depending on the profile of the borrower. The rate of interest at InCred is between 11.75% and 16% and the loan tenure is 10 years. 
• HDFC Credila- too offers unsecured education loans up to INR 40 lakhs at an interest of 12.05%. The borrower has to repay the loan in 10 years. 
• Auxilo- is another NBFC that provides unsecured education loans up to INR 40 lakhs. Exceptions can be made on the maximum loan amount on case to case basis. The rate of interest for the unsecured education loan is between 12.70% to 18% and the loan tenure is 10 years. 

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It should be noted here that all the above-mentioned lenders charge some processing fee for an unsecured education loan. For example, Axis Bank does not charge any processing fee for loans up to INR 20 lakhs. However, it charges a processing fee of 0.75% per lakh + GST. Most NBFCs charge a processing fee between 1% to 2% of the loan amount. Prodigy Finance is the only NBFC that charges a higher processing fee, between 2.5% to 4%, on unsecured education loans.