Interest rate plays a very important role in any loan process. The overseas education loan process is no exception in this case. Most loan applicants make the final decision to borrow an education loan by taking into account the abroad education loan interest rate of the respective lender. Oftentimes, the abroad education loan interest rate could be the only factor based on which students decide on a lender.

However, one thing that everyone needs to remember is that the abroad education loan interest rates of various lenders depend on a lot of factors. This article aims to shed light on these factors, as well as list the latest values of the education loan interest rates charged by the various types of lenders in India.

A typical abroad education loan interest rate in India greatly depends on the type of lender. Education loan lenders in India can be bifurcated into three distinct categories, based on the type of abroad education loan provided by them. Government banks, NBFCs private banks, and finally, foreign lenders.

How Are The Values Of An Abroad Education Loan Interest Rate Decided?

  • The values of abroad education loans are decided by the Marginal Cost of Funds-Based Lending Rate (MCLR), which is the base rate for most lenders.
  • Factors for calculating the MCLR are operating expenses, tenor premium, the marginal cost of funds which includes deposit rates and borrowing costs, and negative carry for CRR which is maintained by the Reserve Bank of India.
  • Lenders also add a “spread” to the MCLR which is calculated and applied based on the creditworthiness of the borrower the type of loan the student is taking (Secured or Unsecured), the loan amount, and other risks that would come up when lending to the student.
  • Lenders take less risk when they lend to students with a higher credit score or collateral, so students who meet this criteria would be able to borrow more easily and at lower interest rates. 

Government Bank Education Loan Rates You Need to Know!

Education loans from the government banks in India are at competitive interest rates as MCLR + spread. In fact, it is an additional over and above MCLR, and this spread is offered as per the borrower’s risk profile and other factors. Below are key details: 

Key Features of Government Bank Education Loans

  • Interest Rate Range:
    • Typically between 9.1% and 10.85%
  • Loan Amount:
    • A loan amount of up to ₹1.5 crore will be provided for an abroad education loan.
  • Collateral Requirement:
    • Loans given out by public banks are mostly collateral-based which reduces the risk for the lenders and lets them provide loans at 
    • lower interest rates.
  • Repayment Terms:
    • Flexible repayment tenures with options for moratorium periods during the course of study.

List of Major Government Banks and Their Updated Loan Features

Here are some of the prominent government banks offering education loans for studying abroad:

  • State Bank of India (SBI)
    • Loan Scheme: SBI Global Ed-Vantage
    • Interest Rate: Starts at 10.15% (MCLR + spread).
    • Loan Amount: Up to ₹1.5 crore.
    • Repayment Period: Up to 15 years post moratorium.
  • Bank of Baroda (BoB)
    • Loan Scheme: Baroda Scholar
    • Interest Rate: Starts at 9.70% (MCLR + spread).
    • Loan Amount: Up to ₹1.5 crore.
    • Repayment Period: Up to 15 years.

  • Punjab National Bank (PNB)
    • Loan Scheme: PNB Udaan
    • Interest Rate: Around 10.25%
    • Loan Amount: Need-based or up to ₹1 crore (higher amounts possible with special cases).
    • Repayment Period: Up to 15 years.

  • Canara Bank
    • Loan Scheme: Vidya Turant
    • Interest Rate: Starts at 8.60%.
    • Loan Amount: Up to 50 Lakhs
    • Repayment Period: Up to 15 years.

Private Banks & NBFCs: Education Loan Interest Rates (With/Without Collateral)

Education loans to study abroad are provided by private banks and Non-Banking Financial Companies (NBFCs). Secured loans (with collateral), and unsecured loans (without collateral) are offered. Factors such as loan type, country of study, and borrower profile will affect the interest rates.

Key Features

  • Secured Loans (With Collateral):
    • The interest rates in private banks would be lower if collateral is provided.
    • A higher loan amount can be availed as well.
  • Unsecured Loans (Without Collateral):
    • The interest rates would be higher for unsecured loans when compared to secured loans.
    • This option would be ideal for students who cannot pledge their collateral
    • Ideal for students without collateral.
  • Country-Specific Rates:
    • This can vary depending on the country 

Interest Rates:

Lender Type Loan Type Interest Rate Range Country Examples
Private Banks With Collateral 9.5% to 11.5% All countries
  Without Collateral 11.5% to 13% USA, Canada, Europe
NBFCs With Collateral 10% to 12% All countries
  Without Collateral 12% to 14.9% USA, Canada, UK, Germany, etc.

Country-Specific Features for Unsecured Loans

  • USA: Interest rates can range from 11.5% to 12.75%.
  • Canada: Interest rates can range from 12% to 13%.
  • Germany, UK, France, Ireland: Interest rates can range from 13% to 14.5%.

Note:

  • Through WeMakeScholars or other platforms, students can get an interest rate waiver of up to 0.5% on unsecured loans.
  • Interest rates matter but so do other elements such as how much flexibility you have regarding repayment and fees for loan processing. WeMakeScholars can negotiate all the for you. 

Abroad Education Loan Interest Rate of Foreign Lenders

Foreign lenders operate under different education loan policies, which differ from those of Indian lenders. Their interest rates are influenced by international benchmarks and currency factors. 

Key Features of Foreign Education Loans

  • Interest Rate Basis:
    • Rates are determined by the London Inter-Bank Offered Rate (LIBOR).
    • LIBOR is updated approximately every two months, causing fluctuations in interest rates.
  • Currency Impact:
    • Loans are disbursed in foreign currencies (e.g., USD).
    • Exchange rates and currency conversion influence the effective repayment amount in INR.
  • Repayment in INR Terms:
    • A nominal interest rate of 8.5% (in USD terms) translates to ~13.5% in INR terms, due to exchange rate adjustments.

Interest Rate Ranges

Loan Currency Interest Rate Range Effective Rate in INR Terms
USD 8.5% to 11% ~13% to 15%
EUR 7.5% to 9.5% ~12% to 14%
GBP 8% to 10% ~13% to 15%

Advantages of Foreign Lenders

  • They offer competitive interest rates in foreign currencies.
  • They offer higher loan amounts, often covering full tuition and living expenses.
  • This option is suitable for students who are trying to get loans directly in the currency of their destination country.

Challenges for Borrowers

  • Currency Fluctuations: There are high chances of increased repayment costs in INR due to depreciation.
  • Limited Access to Local Guidance: Direct applications may lead to confusion about repayment terms, processing fees, or eligibility criteria.

If you need more clarity on foreign lender loans, repayment terms, and interest rate impact, you can refer to WeMakeScholars Loan Assistance. Furthermore, in the 10th episode of Loanflix, you will see an in-depth explanation of these concepts.

FAQ

What factors determine the abroad education loan interest rates in India?
Many factors are considered that determine the risk profile of the borrower and the cost of funds of the lender towards affected abroad education loan interest rates in India. It matters a lot whether you take a secured or unsecured loan because while securing a loan with collateral means that you have something to lose, the risk for the lender is much lower. Of course, a borrower’s creditworthiness also matters, a high credit score or a healthy co-applicant can mean lower rates. Also, the type of lender is a deciding factor, and government banks are known to lend at lower rates when it comes to private banks or NBFCs as government banks are not for profit so they have to offer lower rates. Often, loan rates are charged on the basis of benchmarks such as MCLR (Marginal Cost of Funds Based Lending Rate) or LIBOR, the rates of which keep changing periodically that’s why interest rates also vary with it. Moreover, rates depend on the country of study, the loan amount, and the repayment term, for lenders reckon employment opportunities and repayment faithfulness of the loan.

2. What is the difference between government and private bank education loan interest rates for studying abroad?
Abroad education loans have different interest rate structures between government and private banks as it is based on their policy and risk assessment. Government banks mostly provide secured loans (i.e. collateral), where interest rates are generally in the range of 9.1% to 10.85%. They also have strict eligibility criteria and often they provide government subsidies, such as the CSIS scheme, which help to reduce the burden on eligible students. However, private banks and NBFCs offer secured and unsecured loans. Interest rates for their loans vary from 9.5% to 14.9%, and unsecured loans carry higher rates because their lenders are taking on more risk. Private banks approve loans sooner and are more flexible in terms of the eligibility for the loan. But government banks take longer. When deciding between these lenders, borrowers must consider lower interest rates against things like flexibility, collateral requirements, credit, and loan approval time.

Can the interest rate of an abroad education loan change after it has been sanctioned?
The interest rate of an abroad education loan can change even after sanctioning if the loan is tied to a floating interest rate. The rates for floating are linked either to MCLR for Indian banks or LIBOR for foreign lenders. These benchmarks keep on changing from time to time so loan interest rates and thereafter EMIs may increase or decrease during the repayment tenure. In addition, the loan disbursing delay can affect the applicable rate if the benchmark has been revised. Foreign currency loans come to play a role as well, whose effective repayment rate is in INR terms also get impacted by currency fluctuations. Nevertheless, fixed-interest rate loans have a rate that is unchanged for the entirety of the loan term. At the time of sanction, borrowers should confirm that their loan has a fixed or floating rate and then plan their repayment strategy based on likely changes in the rate.

What is MCLR, and how does it affect my abroad education loan interest rate?
The marginal Cost of Funds Lending Rate (MCLR) is a benchmark rate by which banks determine the least interest that they can charge on loans. It is the bank’s cost of funds, operating expenses, and other financial metrics that are regulated by the Reserve Bank of India (RBI). The rate of an Abroad education loan is MCLR + Spread, which is the additional charge on the rate of MCLR based on the borrower’s credit profile, collateral availability, and loan amount. Periodically, (monthly, quarterly, or annually) MCLR rates are revised, which directly affects EMIs on floating interest rate loans, and the loan's EMI changes over time. Here’s an example: Suppose MCLR is rising and that means that borrowers will now see higher repayment costs. MCLR fluctuations don't affect loans that have fixed interest rates. Borrowers can understand MCLR better to expect how interest rates may change and to make informed decisions about their education loans.

How does the country of study influence the interest rate on an abroad education loan?
Lender risk assessments and economic considerations, however, mean that the interest rate on an abroad education loan is hugely influenced by the chosen country of study. The lower interest rates are a result of countries with good educational and job markets, such as the USA, Canada, and the UK, being considered lower-risk destinations. As, unsecured loan rates in the USA are between 11.5% and 12.75% and a bit higher for Europe, such as Germany and France, between 13% and 14.5%. It also helps when the currency's stability is taken care of, foreign currencies city as USD or EUR affect repaid in INR terms since wits are disbursed in foreign currencies. In addition, lenders also take into account the overall full cost of obtaining education, which differs from country to country. If the countries with higher education costs also have higher interest rates for unsecured loans, then that is too high a price to pay. Lenders that are offering competitive rates for your intended study destination should be compared by borrowers.

How can I ensure that I’m getting the best interest rate for my abroad education loan?
Before you apply for an abroad education loan, compare the best interest rate offered by government banks, private banks, and NBFCs. For secured loans, government banks are generally low on rates, and private banks and NBFC can be competitive in their unsecured loans. If you can, provide collateral, and secure a better rate of interest. Also, a high credit score and selecting a co-applicant who is financially strong will make it easier to get favorable rates. Use WeMakeScholars, which negotiates with the lender and gives an additional waiver of 0.5% on the interest rate. When interest rates are declining, you should take up loans with floating interest rates, but check how often these are changed. Repayment terms, processing fees, and prepayment penalties should be thoroughly assessed so that the overall cost of borrowing is minimized. Knowing what to look for, and being proactive can help you get the most cost-effective loan for your education abroad.

Note: WeMakeScholars is an organization funded and supported by the Government of India that focuses on International Education finance. We are associated with 10+ public/Pvt banks/ NBFCs in India and help you get the best abroad education loan matching your profile. As this initiative is under the Digital India campaign, it’s free of cost. The organization has vast experience dealing with students going to various abroad education destinations like the US, Canada, UK, Australia, Germany, Sweden, Italy, China, France among others