Many students apply for education loan to pursue their higher education in India or Abroad. However, borrowing an education loan to fund our higher education may seem like a daunting and worrisome task. It is a daunting financial responsibility for many students as they are often worried about repayment methods. In the case of overseas education, the responsibility is often shared with a co-applicant. Having education loan insurance offers the benefit of reducing the pressure on the co-applicant to repay the loan amount in case the borrower faces a misfortune and thus slightly on the borrower as well.
What is Loan Insurance and its Importance?
Most of the money lenders accept only the parents of applicants as co-applicants for their study abroad loans. This is applicable in the case of both education loans without collateral and secured loans (loans without collateral) as well. Purchasing loan insurance is proven to offer benefits in case the applicant faces a misfortune. And reduce the burden of repaying the loan that may fall entirely on the co-applicant. This gives a sigh of relief to the borrower of government bank education loans in which the parents of the applicants are the co-applicants.
In the case of overseas education loans, in case the applicant faces a misfortune or such situation of a terminal illness. The insurance company will be paying the entire amount of the education loan instead of the co-applicant.
Also Read: Types of Education Loan for Indian Students
Is It Necessary to Have Education Loan Insurance?
The necessity of loan insurance totally depends on the lender. In the case of the overseas education loan process of the government banks, it is not necessary to purchase the loan insurance along with the abroad education loan. Most government banks leave this decision to applicants whether to purchase an education loan or not under any education loan schemes that they offer.
However, in the case of private banks’ abroad education loan process, all applicants who have applied for education loans without collateral will have to purchase the insurance. The reason is that none of them asks students to pledge any collateral security for the loan they have taken. So if you are a study abroad aspirant planning to apply for a loan without collateral you will be required to purchase education loan insurance
Also Read: ICICI Education Loan
Private banks, or government banks and money lenders charge certain insurance fees that may vary depending on the institution, Generally, government banks have in-house loan insurance lenders who offer loan insurance schemes. For instance, SBI provides loan insurance via their SBI Rinn Raksha Scheme. It is mandatory to purchase the loan insurance for NBFCs as they do not ask students for collateral security.
|Government Banks||0.5% -1% of the entire education loan amount|
|Private Banks||1.5% of the overall loan amount|
|NBFCs||2% of the total study-abroad loan|
Processing Fees for Purchasing Insurance
Once the student decides to purchase education loan insurance, the student must focus on whether the loan insurance fees are immediately required or the money lender would provide some time period. A great advantage offered here is that the students need not make a separate payment of their insurance fees. The insurance fees are adjusted within the total amount of the loan that the student will get. This means that if you have applied for an education loan of a certain amount the insurance fees are added to the loan amount. Your total loan value would be loan amount + education and insurance fees.
Before applying for the insurance students must know that the loan insurance fees are directly proportional to the length of the education (the time period for which the loan is taken). The lower the duration of the time for which the loan is taken the lesser would be the loan insurance fees.
What are its Benefits?
The following are the benefits of insurance:
- As borrowing a loan is a daunting financial responsibility, insurance is like a provision that reduces the pressure on the co-applicant to return the loan in case the applicant faces any unfortunate situation.
- It is certainly a daunting advantage to purchase insurance in case of applying for an overseas education loan as it takes off the burden on the co-applicant to repay the loan amount.
- Government banks provide many schemes such as SBIs Rinn Raksha Loan insurance to help applicants with their education loan repayment
- Students who choose to purchase loan insurance at the time of applying for the loan can get an additional waiver of 0.5% on the interest rate of their loan.
Having education loan insurance offers the benefit of reducing the pressure on the co-applicant to repay the loan amount in case the borrower faces a misfortune and thus slightly on the borrower as well.
The necessity of loan insurance totally depends on the lender. In the case of the overseas education loan process of the government banks, it is not necessary to purchase the loan insurance along with the abroad education loan. However, It is mandatory to purchase education loan insurance for NBFCs as they do not ask students for collateral security.
It varies depending on the financial institution. For example, government banks charge 0.5% -1% of the entire education loan amount, private banks charge 1.5% of the overall loan amount and NBFCs charge 2% of the total study-abroad loan.
This was all about Education Loan Insurance. Visit Fly.Finance to know more about such topics.