- Secured vs Unsecured Education Loan: Overview
- What are Secured Education Loans?
- Types of Collateral
- What are Unsecured Education Loans?
- Eligibility Criteria for Unsecured Education Loans
- Secured Loan vs. Unsecured Loan for Studying Abroad
- Conclusion
- Frequently Asked Questions
Overseas education loans come in two types: secured and unsecured, also known as loans with and without collateral. The key difference between these two is whether or not you pledge collateral or provide a guarantee to the lender. Both types of loans are available for students who need to borrow finances from banks, NBFCs, or international lenders.
Despite the availability of both options, secured overseas education loans are more popular due to their higher loan amounts and additional benefits. Let’s quickly dig in!
Secured vs Unsecured Education Loan: Overview
Secured Education Loan (With Collateral):
- Requires collateral, such as property or fixed deposits.
- Generally, it offers higher loan amounts based on the value of the collateral.
- Interest rates may be lower due to the security provided.
- Relaxed eligibility criteria due to the collateral.
Unsecured Education Loan (Without Collateral):
- Does not require collateral.
- Loan amounts may be lower compared to secured loans.
- Interest rates may be slightly higher due to the absence of collateral.
- Stringent eligibility criteria based on the borrower’s creditworthiness and co-applicant’s financial stability.
What are Secured Education Loans?
When applying for secured education loans, borrowers must present a security or collateral against which the loan is given.
Many people take these loans after collecting a large sum of money is required. They receive an assurance from the lender about borrowing an amount they refund after some time. But what is meant by collateral? Collateral is what you promise before taking any credit to ensure that the lending institution can claim it by force -possession as payment for what you owe in case of default or bankruptcy.
Highlights:
A secured education loan, also known as an “education loan with collateral,” has several important features:
- Lower Interest Rates: During non-reimbursement scenarios, if this occurs, the lender is assured of the ability to recover his/her loan plus any other amounts that would have been spent to service this facility. Consequently, such loans are granted at low interest rates because the lender’s risk is highly reduced.
- Types of Collateral: Collateral can be either tangible or intangible assets. Here are some examples:
Types of Collateral:
| Tangible Assets | Intangible Assets |
| Non-agricultural land | Fixed deposits |
| House | Life insurance policies |
| Apartment | Stocks |
| Shop | Mutual funds |
| Government bonds |
What are Unsecured Education Loans?
Unsecured education loans, also known as education loans without collateral,” are personal loans that do not require security. They are meant to cover the costs of students studying overseas. If a student fails to pay back this money, it can be recovered because it lacks security as a guarantee.
Highlights:
To approve an unsecured loan, lenders often check the borrower’s creditworthiness. Here are some key features:
- Higher Interest Rates: The increased risk to the lender causes unsecured loans to have higher interest rates since such loans do not require collateral.
- Repayment Period: Because of the lack of collateral, unsecured student loans normally have shorter repayment periods, and students may be required to pay some installments before completion of their courses.
Eligibility Criteria for Unsecured Education Loans
To qualify for an education loan without collateral, students must meet the following requirements:
- If you expect your annual income to be Rs. 4 lakh or above, account for the total liabilities and expenses.
- The co-applicants CIBIL score must be above 700.
- Any student going to the USA must have a GRE score of 300 or more
- The applicant’s parents must own a residential house for parental property ownership.
- According to the IELTS score, a student should have an IELTS score of at least 6 or 6.5 bands for studies in other countries.
Secured Loan vs. Unsecured Loan for Studying Abroad
To understand the basic differences between secured and unsecured education loans, refer to the comparative table below:
| Difference | Secured Education Loan | Unsecured Education Loan |
| Requirement of Collateral | Property or fixed deposit as security for the loan | Does not require collateral but may need a financial co-applicant |
| Loan Amount | Generally higher, depending on the value of the collateral | Lower compared to loans with collateral |
| Interest Rates | May be low due to the security pledged | May be high due to the absence of security |
| Eligibility Criteria | Relaxed, as the collateral serves as security | Stringent, as the lender relies on the borrower’s creditworthiness and co-applicants financial stability |
| Loan Processing Time | Longer due to documentation, property valuation, etc. | Shorter due to fewer requirements |
Conclusion
Nomad Credit is here to assist you. Contact us, and our team will guide you through the process. Our expertise and guidance ensure a smooth and seamless experience in obtaining the right education loan for your international education journey.
Use our Loan Finder and Eligibility Tool to find the perfect education loan tailored just for you. Start your journey today and unlock endless possibilities.
Frequently Asked Questions:
How long does processing a secured loan to an unsecured education loan?
Because of collateral valuation and additional documentation requirements, secured educational loans typically take longer to process than unsecured ones. Unsecured loans, conversely, do not require any form of guarantee, so they are usually quickly processed.
How much can I borrow with a secured vs. an unsecured education loan?
Secured education loans typically allow for higher borrowing amounts, as the loan is backed by collateral. Unsecured education loans usually offer lower loan amounts due to the increased risk for the lender.
Which loan type is better for international studies: secured or unsecured?
Your individual circumstances determine whether secured or unsecured education loans are preferable. If you need more money and have something valuable to borrow against, consider taking out a secured loan. On the other hand, if you lack security yet enjoy an outstanding credit background and financial stability, then you ought to be inclined towards unsecured lending.
What are the repayment terms for secured and unsecured education loans?
With secured education loans you will be able to repay them at your own pace because of their elasticity or taking a long-term to repay them. Unsecured education loans, on the other hand, are necessarily quicker with scarce chances of evading that because they may require some installment before one completes school.
Can I convert an unsecured loan to a secured loan?
Some lenders allow this option, but it depends on their policies and your eligibility.
