The increasing number of Indian students going overseas especially to the US in search of quality education has led to an influx of lending institutions willing to offer financial assistance. In addition to Public & Private Banks and Non-Banking Financial Companies (NBFCs) in India, students now have the option of taking student loan from international lenders as well. However, borrowing money lender comes with a set of conditions that has its own pros and cons.
In part 1 of the 2 part blog series, Student Cover highlights pros and cons of taking student loan from Indian or international lenders. However, before proceeding further one must know the distinction between Indian Lenders and International Lenders.
Who are Indian Lenders?
By Indian lender, we refer to all those financial institutions such as public and private sector banks and NBFCs that offer secured as well as unsecured education loans to students for overseas study. These lenders have to work within the rules and regulations formulated by Government of India or Indian Central Bank i.e. The Reserve Bank of India. Major Indian lending institutions include State Bank of India (Public Sector Bank), Axis Bank (Private Sector Bank), HDFC Credila (NBFC), Auxilo (NBFC) Avanse (NBFC).
Who are International Lenders?
International lenders are lending institutions, fintech platforms or a consortium of lending institutions that provide student loan for higher education. These may or may not fall under the purview of Reserve Bank of India or banking rules and regulations established by government of India. Moreover, the lending rules and interest rates of these international lending institutions may be beyond the jurisdiction of Indian regulators and government. Companies such as Prodigy Finance, MPower Financing, Future Finance and Nomad Credit are some of the major international lenders.
Pros and Cons of Borrowing Money from Indian Lenders
Pros:
1. Institutions governed by domestic laws – They fall under the jurisdiction of Indian courts and legal system and their actions are governed by rules and regulations put in place either by the Reserve Bank of India or Indian government. Hence, in case of any dispute or fraud, a student has the option of approaching local law enforcement authorities for grievance redressal.
2. Both secured and unsecured loans available – Those taking education loan from Indian lenders have more
options to choose from whether to take secured loan or unsecured loan. Banks offer secured loans even up to Rs. 2 crores while NBFCs offer unsecured loans for STEM (Science, Technology, Engineering and Mathematics) up to Rs. 45 Lakhs.
3. Loans available for any Course or institution – Students opting for non-science discipline such as History, Anthropology, Political Science etc. also have the option of taking secured loan to finance their higher education if their chosen field of study or academic institution does not qualify for unsecured education loans.
4. Co-Applicant can be Indian citizen – In case of unsecured loan, the co-applicant in case of education loan taken from Indian lending institution can be an Indian citizen. Therefore a student’s parent or close relative can be a co-applicant for education loan taken to finance higher education.
Cons:
1. Higher interest rate compared to international lenders – Since the interest rate of the domestic lending institution depends on prevailing interest rate scenario of India, the rate of interest (RoI) for education loan taken from Indian institution is higher than that offered by international lenders. The approximate RoI for secured loans range from 9-11% while that of unsecured loans range from 11-13%.
2. Secured loan requires much more documentation – If a student takes secured education loan, then he or she might have to keep property or land (non-agricultural) as collateral. The loan is sanctioned to the student based on the valuation of the amortized asset i.e. property etc. which could require a lot of documentation and may have to go through a long process of assessment and verification.
3. Currency fluctuation is a factor – Since the money is borrowed from an Indian institution is used to pay the fee and other expenses which are usually in US Dollar the suffer from vagaries of exchange rate. This may not be much of an issue provided the exchange rate between the Dollar and Indian rupee do not fluctuate. However, if the Rupee appreciates against the dollar in future, the student might have to send more dollars back to India to pay the EMI and vice versa. Similarly, if the value of rupee depreciates, the student might have to borrow higher amount (in Rupee terms) to be able to pay for the tuition fees and living expenses.
Click here to go to Part 2 of this blog series.
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