The advantages of higher education are nearly endless abroad. It gives access to better jobs on the professional front and helps to build your own bright future. It is no surprise that every year more than 750,000 Indian students decide to study abroad. However, it also takes lots of legwork to study abroad. Entry examinations, the application process, travel and living needs, and many other things have to be taken into consideration.
Due to its enormous costs, many Indian students are offering educational loans to finance their studies abroad. Some students assume that it is all right for them to take education loans from two different donors while selecting the best credit offers for different lenders in India.
If you’re the one who is about to make that error, hold your horses and read this blog to learn why a student can apply with two lenders for an educational loan but will receive payments only with one. First, let’s discuss India’s two types of education loans.
Secured education loan or education loan with collateral
The borrower here promises loan security. It can be an immovable asset like a house or property or an immaterial asset like government bonds, fixed deposits, mutual funds, etc. This loan has a lower rate of interest and comes with a moratorium period offered by public banks, private banks, and NBFCs.
Unsecured education loan or education loan without collateral
For this loan, the student is not required to pledge any collateral. They are offered by nationalized banks, private banks, and NBFCs and have a higher interest rate. Unsecured loans up to INR 7.5 lakhs are available from nationalized banks. NBFCs and private banks, on the other hand, offer higher-value unsecured education loans, up to INR 50 lakhs. However, NBFCs and a few private banks do not grant a moratorium on such unsecured loans, and students have to make repayments even during their studies.
Because of the high demand for abroad education loans, lenders are creating new education loan schemes, which confuses first-time borrowers, who end up applying to two different schemes with two different lenders in the hopes of reducing their financial burden. For example, a first-time student borrower who may not have enough collateral to pledge for all study-related expenses may apply for a secured education loan from Lender 1 (to cover tuition fees) and an unsecured education loan from Lender 2 (to cover living expenses and other study-related expenses), or vice versa.
CIBIL Score: CIBIL (Credit Bureau of India Limited) is a company that keeps track of all of an individual’s financial transactions. Individuals’ credit card payment history, loan EMI payment schedules, and other financial transactions are included in this category. A person’s credit score is used by banks and other financial institutions to determine their ability to repay any loan they may have applied for. Before considering a loan applicant’s education loan application, both government and private lenders check their credit score. The score assists banks in determining a candidate’s creditworthiness, allowing them to determine whether or not the applicant is eligible for a study abroad loan.
What Happens When You Apply to Two Different Lenders for an Abroad Studies Education Loan?
When most bank officials receive a study abroad loan application, the first thing they do is check the CIBIL score of both the loan applicant and their co-applicant. If the credit score meets the lender’s requirements, the application is forwarded to the appropriate departments for the next steps in the process.
When students apply for two different education loans from two different lenders to fund the same course, the following happens:
- Bank 1 looks for any discrepancies in the student’s CIBIL score and authorizes the processing of their file. While this is going on, the student applies for a study abroad loan for the same course with a different bank.
- Bank 2 checks the applicant’s CIBIL score and discovers records indicating that the student has applied for a study abroad loan to fund the same course. However, because this event has no significant impact on the CIBIL score of the student and their co-applicant, Bank 2 moves on to the next phase.
- The study abroad loan process with both banks runs smoothly until an education loan is approved. Due to the fact that they have not yet received a disbursement of their overseas education loan amount, the CIBIL score of both the student and their co-applicant has been unaffected up to this point.
- Now that the loan has been approved, students must go to one of the banks to complete the final phase of their education loan application, which includes signing the loan agreement and other important formalities. Post this, the education loan is disbursed from Bank 1/Bank 2.
- When a bank disburses an education loan to the loan applicant (student) and their co-applicant, CIBIL records the event on both parties’ credit reports, lowering their credit scores significantly.
- The other bank notices the change and rejects the loan sanction given to the same applicant and their co-applicant automatically.
Based on the prior events, it is possible for students to apply for an abroad studies education loan with two different lenders in order to fund the same course, but only one of them will allow the loan to be disbursed.
Guest Blog by GyanDhan