Highlights
a). Overseas education can cost tens of lakhs of rupees
b). Traditional student loans offer economical financing
c). Regular student loans can be hard to qualify for
d). A loan against property is a good student loan alternative
Quality education is key to the overall development and a fruitful career and with world-renowned colleges opening doors to international students, financing your child’s overseas education program may be at the top of your checklist. However, while higher education programs abroad ensure quality, the costs involved can be difficult to cater to without sound planning. To address this, students normally approach reputed financiers for student loan financing.
Traditional student loan for studying abroad simply goes by the name of education loans and are often tailored to the nature of the course. The upsides to the traditional student loan are that you get financing at a nominal rate of interest, a moratorium period for repayment, and income tax benefits under Section 80E. Further, depending on the lender, you do not need to provide collateral up to a certain amount. That being said, to obtain student loan financing, your child may need to navigate through arduous merit-, course-, and institute-based criteria and produce a large amount of documentation. Moreover, the sanction may not cover all expenses and get disbursed to the college’s admissions office, not your bank account.
Alternatives to the traditional student loan include personal loans and loans against property taken for higher education programs. However, personal loans, though accessible, collateral-free, and large enough for some of the best colleges in India, do not provide financing sufficient for an overseas education program. For instance, annual costs, including tuition and lodging, in the US run-up to Rs.34 lakh or more and to address these, you’re better off exploring what a loan against property can offer you.
Here’s what makes a loan against property a good student loan.
1. You get access to an enormous loan
International educational institutes offer well-curated courses and as indicated, the cost of studying and staying abroad can be heavy on the pocket. What makes a loan against property a good student loan is that it offers high-value financing, even as much as Rs.25 crore, depending on the lender you go with. Traditional student loans do not offer as much, though some lenders may go up to Rs.1-1.5 crore. That being said, to obtain a high-value traditional loan, you will probably have to provide collateral, and the same holds for a loan against property. Here, you mortgage real estate you own to obtain access to financing.
2. You obtain funds economically
The benefit of taking a loan against property is that the asset your pledge gives you access to lower interest rates. A reduced interest rate translates to pocket-friendly EMIs. While the interest rates here are not flat across the board, neither are they in terms of a regular student loan. Further, on comparing lenders, you’ll note that the interest rates on traditional student loans and loans taken against properties are comparable.
3. You enjoy restriction-free usage
An important aspect of a loan against property is that you are free to use the finances for any purpose you desire. You can use it to pay your child’s tuition fees and accommodation expenses, while also financing additional courses and research programs. Since the loan is disbursed to you, you enjoy freedom concerning the sanction.
4. You can repay the loan comfortably
A loan against property does not offer you or your child a repayment holiday. Nonetheless, what you do get is a length tenor, which generally stretches up to 20 months. Picking the right tenor is crucial as a high-value loan must only be taken after giving serious thought to repayment. With a long tenure, you can bring down your EMIs and also budget for the income that your child will earn post-graduation.
5. You benefit from an easy application process
To obtain a loan against property all you need is to possess good financial credentials and a well-maintained property. The criteria are straightforward, and your child does not have to worry about applying for a course that will keep your lender happy. Lenders conduct a valuation of your property and offer financing up to a particular percentage of its market value. Similarly, they also check your credit score and report to ascertain your repayment capability. With these two factors in place, you can get access to a large loan.
Going forward, whichever solution you opt for, a traditional student loan, a personal loan, or a loan against property, remember to budget for both your child’s future and repayment. When it comes to offering high-value financing, you’re probably going to have to put some assets on the line and so, make it a point to employ financial prudence even as you aim to make your child’s dreams a reality.
