PROS & CONS OF STUDENT LOANS: INDIAN VS INTERNATIONAL LENDER (Part 2/2)

February 17, 2020

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Education Loan, International Lenders, Overseas Education Loan, Student Loan

In the previous blog, we explain the Pros and Cons of taking education loan from Indian lenders and lending institutions. In part 2 of this 2-part blog series, Student Cover explains the pros and cons of borrowing money from international lenders and lending institutions to finance higher education overseas especially the US. If you haven’t read part 1, click here to go to part 1 of this blog series.

Pros and Cons of Borrowing Money from International Lenders

Pros:

1. Lesser RoI options – Most international lenders are based in western countries where the interest rates have historically been very low. Therefore, a student borrowing money from international lender might get the education loan at 3-5% which is much lower than the rates at which they are offered loan by Indian lenders.

2. Better career prospects – Some international lenders have made tie-ups with reputed academic institutions and provide education loans for select courses with high job probability and good career prospects. Therefore, students whose academic institution and course qualifies for loan from such lenders have career prospect as compared to those whose course and academic institution does not qualify for such loans.

3. Currency fluctuation is not much of a factor – Those students who borrow money from international lenders are not affected by fluctuation in currency as the amount is both borrowed and repaid in Dollars or Pound. So if a student gets a job in the country where he or she pursued higher education, that student might not be affected if that country’s currency fluctuates against Rupee. However, if a student plans to return back to India after completing the course, his EMI might be affected by currency fluctuation.

Cons:

1. May not be regulated by local laws – International lenders, if they have not registered themselves in India or have offices in India, may not fall under the jurisdiction of Indian courts and legal system. Hence, in case of any dispute, a student has to seek redressal of their grievance from courts and law enforcement authorities abroad or in the country where the lending institution is registered in.

2. Limited Options – Unlike Indian lenders, most international lenders provide unsecured loans and that too for specific courses and educational institutions. This limits the loan options for students as the course or academic institution that they have got admission in, may not qualify for education loan.

3. No Secured Loan option – Since secured loans are given against collateral whose verification and valuation requires a lot of documentation, most international lenders provide unsecured education loans based on loan eligibility criteria such as credit ratings, credit history, earnings etc. Therefore students who wish to take secured loans against collateral for a course or institution not included in the lender’s list is deprived of education loan.

4. Co-applicant or guarantor may have to be Non-Indian – In certain cases, the lender might require the co-applicant or guarantor of unsecured education loan to be a resident of the country where the student intends to pursue higher education. For example, students who wish to pursue higher education in the US might be required to have a guarantor who is a US citizen or a Green Card holder. Therefore, those students who do not have a relative or acquaintance who is a US citizen or Green Card holder might not be able to avail education.

5. Dependency on LIBOR – Interest rates of some international lenders like Prodigy Finance have their interest rates linked to London Interbank Offered Rate (LIBOR) which fluctuates from time to time. LIBOR is a benchmark interest rate at which banks lend money to each other. Therefore, education loan from international lenders may vary from student to student depending on the prevailing LIBOR rate. Hence, students must check with the lender whether or not the loan that they are offering is linked to any such benchmark.

Let’s Wrap Up!

Borrowing money to finance higher education has its own pros and cons. The rise in number as well as volume of education loans offered of Indian banks and non-banking financial companies (NBFCs) as well as international lending institutions has increased loan options for Indian students. However, before taking loan from Indian or International lenders, a student must analyze the pros and cons of such loans. Each education loan comes with its own set of terms and conditions which might either be favorable or unfavorable to student depending on RoI, chosen course and academic institution, currency exchange rate, repayment terms etc.

Disclaimer: The content of this blog is based on personal research of the writer. Readers’ discretion is advised. Neither Student Cover nor the writer will be held responsible for any wrongful interpretation of the content of this blog.

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