After finalising the course and the place for abroad studies, the next and most challenging step that every aspirant faces is to arrange and manage the funds needed to study outside of India. In comparison to other financial assistance such as scholarships and grants, an education loan is an important component of managing funds to study abroad. Considering any loan process, interest rates play an important role. In this regard, the process of obtaining an international education loan is no exception. The majority of loan applicants make their final decision on whether or not to borrow an education loan by considering the interest rate on an education loan for study abroad offered by the lender in question.
Sometimes, the education loan interest rate is the only factor that students consider when choosing a lending institution for their studies. However, one thing that everyone should keep in mind is that the interest rates charged by various lenders for international education loans are dependent on a variety of factors. This article sheds light on these factors, as well as to provide a comprehensive list of the most recent values of education loan interest rates charged by the different types of lenders in India.
The interest rate on a typical international education loan in India is highly dependent on the types of lenders. Education loan lenders in India can be divided into three distinct categories based on the type of international education loan that they provide to their customers. Government banks, non-bank financial companies (NBFCs), private banks, and finally foreign lenders are all represented.
What Factors Influence the Determination of the Interest Rate on an Abroad Education Loan?
The MCLR (marginal cost of funds-based lending rate) is the lowest interest rate a bank or lender can charge its customers. Interest rates lower than MCLR are generally not available to most financial institutions. However, certain exceptions can be made if the Reserve Bank of India (RBI) grants permission for them. This figure is frequently referred to as the “benchmark” on which most Indian lenders of education loans base their calculations of interest rates on education loans taken out for study abroad. To calculate the MCLR, various factors such as the tenure premium, marginal cost of funds, operating costs, and so on are taken into consideration.
Government Bank Education Loan Interest Rate:
Although the marginal cost of borrowing (MCLR) serves as the foundation for all foreign education loan interest rates fixed by lenders in India, the majority of government bank’s education loan interest rates are calculated as the MCLR plus a spread. An additional premium amount levied by banks on top of the basic MCLR value is referred to as the spread. The interest rate on government-sponsored education loans for overseas study ranges between 9% and 10%. Because government banks grant education loans on the basis of collateral security, the total amount of education loans sanctioned by government banks could reach INR 1.5 crores in total.
Moving forward, let us take a look at the interest rates charged by private banks for education loans to students studying abroad.
Education Loan Without Collateral Interest Rate from Private Banks:
In India, non-banking financial companies (NBFCs) and private banks are some of the major providers of unsecured education loans without requiring any form of collateral. Because these loans do not require any form of collateral security, the interest rate on an education loan without collateral is higher when compared to the interest rate on a government-backed education loan. Interest rates charged by private banks and non-bank financial institutions (NBFCs) on education loans vary depending on a variety of factors. One of these factors is the country of study that loan applicants have chosen. Here is an overview of the estimated education loan interest rate levied by non-bank financial institutions (NBFCs) and private banks for the countries listed below:
11.5% to 12.75% in the United States
In Canada, the percentage ranges from 12 to 13 percent.
Germany, the United Kingdom, France, Ireland, and other countries: 13% to 14.5%
Education loans without collateral from NBFCs and private banks may have interest rates ranging between 11.5% and 14.9% on average, according to the National Bureau of Financial Institutions.
The next type of lender to be considered is that of foreign lenders. Let’s take a look at the interest rates that they charge on their education loan programmes.
Interest Rate for Abroad Education Loan of Foreign Lenders:
In terms of interest rates on education loans, foreign lenders have a distinct set of policies in place for education loans in foreign countries. The same can be said for their interest rates on international education loans. The interest rates on foreign education loans charged by foreign lenders are calculated on the basis of a rate known as LIBOR, or the London Interbank Offered Rate. The London Interbank Offered Rate (LIBOR) fluctuates almost every two months, and this fluctuation has an impact on the final interest rate of foreign lenders on student loans for study abroad. It is also important to note that the difference in currency values plays a significant role in determining the interest rate on their international education loan.
Interest rates on education loans from foreign lenders range between 8.5% and 11%, depending on the country. However, because the amount of the abroad education loan is in US dollars, this 8.5% is interpreted as 13.5% when converted to Indian rupees.
Because students approach lenders in India directly for an abroad education loan, different features of the education loan plan, such as the interest rate on the abroad education loan, the repayment terms for the education loan, and so on, are frequently lost in translation.