By Ajay Sharma, President and Founder – Abhinav Immigration Services
Many students choose to have a non-collateral education loan to finance their higher education overseas since the application process is simple, requires less paperwork, and does not require the pledge of assets as collateral.
The option is ideal for individuals who do not possess assets with high market value but need an education loan.
However, students may encounter typical challenges during the education loan application procedure.
Challenges of Non-Collateral Educational Loans
The article highlights a few of the most significant challenges candidates face when applying for a non-collateral education loan.
CIBIL Score Issues
Almost all private lenders, such as NBFCs and private banks, evaluate multiple areas of your profile and that of your co-applicant. And they are particularly stringent about one metric, the CIBIL score.
Now, students confront complications, whether their own or a co-CIBIL applicant’s score is low on the CIBIL report. The cause for a low CIBIL score could be anything from failing on prior loan payments to applying for too many credit cards.
Financial Co-applicant Income Issues
Private lenders heavily scrutinise the financial status of your co-applicant when approving unsecured education loans. This is because private lenders want interest payments during the moratorium period. And when the student is abroad, the co-applicant is expected to make those payments.
Also, unlike secured loans, where the lender can use the pledged collateral to recover the amount in the event of default, in an unsecured education loan, the lender cannot use the collateral to recover the amount. The financial co-applicant is responsible for repaying the loan if the student fails to do so.
The issues follow when the income of your co-applicant is low. Also, the requirements for salaried and self-employed co-applicants vary amongst lenders. In addition to income, private lenders often consider the co-applicants’ age when deciding whether to approve a loan application.
Education Loan Disbursement Issues
When a bank sends education loan cash to a student’s account (Fee to the university and the remainder to the student), this is known as “disbursement.”
Students have difficulties travelling to countries such as Canada, Germany, Australia, etc., where embassies require them to transfer their tuition fee or one year’s living expenses before their visa application.
When students request disbursement from their lending bank, the bank declines and requests a visa first. This creates complications for students. But it would help if you had the disbursement for the visa, and banks are unwilling to release the funds without the visa.
Conclusion
Fortunately, the list of issues that students with college loans confront is not particularly large. And this should not prevent you from pursuing your educational objectives through financial aid.
