Studying abroad can be a significant financial burden, which is why many parents opt for education loans.
Banks typically charge interest rates ranging from 8.60% to 13.70% for education loans.
These loans cover tuition fees, living expenses, and other costs, but they do not include expenses like travel, coaching, or private tuition fees.
Factors Influencing the Loan Amount
The amount of the education loan varies depending on several factors, such as the country where the student plans to study.
According to Kuho Finance COO Sridhar Hebar, banks and NBFCs consider the institution and course the student will attend, as well as the likelihood of securing a job after graduation. These factors help determine the student’s ability to repay the loan.
Collateral and NBFC Interest in Education Loans
Many banks require collateral for education loans, such as property, bank deposits, or life insurance policies, which can be in the parents’ names.
In recent years, non-banking financial companies (NBFCs) have shown an increased interest in offering education loans.
It’s essential to compare interest rates from different banks and NBFCs, as even a small difference in rates can have a significant impact.
Lower Interest Rates from Public Sector Banks
Public sector banks generally offer lower interest rates on education loans and larger loan amounts.
However, the approval process tends to be slower due to heavy paperwork. On the other hand, NBFCs tend to approve loans more quickly, which is why many parents prefer them.
Advantages of Taking a Loan from an NBFC
NBFCs can be beneficial for those who prefer not to offer collateral or need a faster loan disbursement.
They are also a good option for individuals who want a quicker and less cumbersome loan approval process.
Additionally, some international financial institutions offer education loans, which could be an option for students studying abroad.
Taking an Education Loan from Foreign Institutions
If you choose to take a loan from a foreign financial institution, be aware of some additional risks, particularly related to exchange rate fluctuations.
Hebbar points out that if you take a loan in dollars and your child’s salary is paid in rupees after returning to India, currency conversion costs can increase the burden of repaying the loan.
Currency Exchange Rate Risks
For example, if you take a loan of $50,000 when the exchange rate is 75 INR to 1 USD, your loan would be around ₹37.5 lakh.
However, if the exchange rate rises to 87 INR to 1 USD, the same loan would now cost approximately ₹43.5 lakh, adding a significant financial strain.
If the student plans to work abroad after completing their studies, this additional cost may be less of an issue.
Choosing the right institution for an education loan involves balancing factors like interest rates, loan approval time, and currency exchange risks.
It’s essential to consider your specific needs and the long-term impact of loan repayment.
