Secured vs Unsecured Education Loan: Your Quick Guide

Overseas education loans come in two types: secured and unsecured, also known as loans with and without collateral. The key difference between these two is whether or not you pledge collateral or provide a guarantee to the lender. Both types of loans are available for students who need to borrow finances from banks, NBFCs, or international lenders.

Despite the availability of both options, secured overseas education loans are more popular due to their higher loan amounts and additional benefits. Let’s quickly dig in!

Start Your Application Today!

What are Secured Education Loans?

When applying for secured education loans, borrowers must present a security or collateral against which the loan is given.

Many people take these loans after collecting a large sum of money is required. They receive an assurance from the lender about borrowing an amount they refund after some time. But what is meant by collateral? Collateral is what you promise before taking any credit to ensure that the lending institution can claim it by force -possession as payment for what you owe in case of default or bankruptcy.

Highlights:

A secured education loan, also known as an “education loan with collateral,” has several important features:

• Lower Interest Rates: During non-reimbursement scenarios, if this occurs, the lender is assured of the ability to recover his/her loan plus any other amounts that would have been spent to service this facility. Consequently, such loans are granted at low interest rates because the lender’s risk is highly reduced.
• Types of Collateral: Collateral can be either tangible or intangible assets. Here are some examples:

Types of Collateral

Note: The type of collateral accepted varies by lender. Most Indian banks commonly accept immovable property such as houses and land, along with financial assets like fixed deposits. Students should verify acceptable collateral types with their specific lender before applying.

What are Unsecured Education Loans?

Unsecured education loans, also known as education loans without collateral,” are personal loans that do not require security. They are meant to cover the costs of students studying overseas. If a student fails to pay back this money, it can be recovered because it lacks security as a guarantee.

Highlights:

To approve an unsecured loan, lenders often check the borrower’s creditworthiness. Here are some key features:

• Higher Interest Rates: The increased risk to the lender causes unsecured loans to have higher interest rates since such loans do not require collateral.
• Repayment Period: Because of the lack of collateral, unsecured student loans normally have shorter repayment periods, and students may be required to pay some installments before completion of their courses.

Eligibility Criteria for Unsecured Education Loans

To qualify for an education loan without collateral, students must meet the following requirements:

• If you expect your annual income to be Rs. 4 lakh or above, account for the total liabilities and expenses.
• The co-applicants CIBIL score must be above 700.
• For USA-bound students, a GRE score of 300+ may improve unsecured education loan approval chances with certain lenders. However, GRE scores are generally not required for education loans for the UK, Canada, Ireland, or Australia.
• According to the IELTS score, a student should have an IELTS score of at least 6 or 6.5 bands for studies in other countries.

Co-applicant Income Requirement: Most lenders require the co-applicant (usually a parent or guardian) to have a stable income. Typically, INR 25,000-INR 40,000 monthly income is expected for moderate loan amounts, while higher loans may require INR 60,000+ income.

Get Admission Assistance Now!

Secured Loan vs. Unsecured Loan for Studying Abroad

To understand the basic differences between secured and unsecured education loans, refer to the comparative table below:

Real Interest Rate Comparison: Secured vs Unsecured Education Loans

Education loan interest rates vary significantly depending on whether the loan is secured or unsecured. Secured education loans generally offer lower interest rates and higher loan amounts because collateral reduces the lender’s risk. Unsecured education loans, on the other hand, provide faster approvals and require no property security, but interest rates are usually higher.

Interest rates depend on factors such as university ranking, course type, co-applicant income, academic profile, and destination country. Students admitted to top-ranked universities may qualify for lower unsecured loan rates and higher sanction amounts.

Secured vs Unsecured Education Loan: EMI Comparison Example

To understand the long-term financial impact of choosing a secured or unsecured education loan, consider the example below for a INR 30 Lakh education loan with a 15-year repayment tenure.

In this example, choosing an unsecured education loan results in approximately INR 4.7 Lakhs more in total interest payments over the loan tenure. However, many students still choose unsecured loans because they do not require collateral and offer significantly faster processing times.

Which Education Loan Should You Choose?

Choosing between a secured and unsecured education loan depends on your financial profile, available collateral, target university, and urgency of funds.

Choose a Secured Education Loan If:

• You have property or eligible collateral available
• You want lower interest rates and lower EMIs
• Your total study abroad cost exceeds INR 45 Lakhs
• You are comfortable with slightly longer processing timelines
• You want higher loan amounts for MBA, medical, or premium master’s programs abroad

Choose an Unsecured Education Loan If:

• You do not have collateral or property documents available
• You need faster loan approval and disbursement
• You are admitted to a globally recognised university
• You want a loan based on future earning potential rather than family assets
• You are applying for countries such as the USA, UK, Canada, Ireland, or Germany for STEM or high-ROI programs

For many Indian students, unsecured education loans provide easier access to study abroad funding without putting family property at risk. However, secured education loans remain the better option for students seeking the lowest possible interest costs over the long term.

Compare Education Loan Options!

Conclusion

Nomad Credit is here to assist you. Contact us, and our team will guide you through the process. Our expertise and guidance ensure a smooth and seamless experience in obtaining the right education loan for your international education journey.

Use our Loan Finder Tool to find the perfect education loan tailored just for you. Start your journey today and unlock endless possibilities. 

Loan Finder

Find Your Best Loan
Options in Minutes

Explore Offers Now