So you’ve decided to do your masters; pat yourself on the back – you deserve it. It’s a once-in-a-lifetime opportunity and an investment.
Whether you’ve applied to your dream universities or you already have your admit; it’s time to think about funding your studies. If you’re considering an educational loan, these are 11 important terms you must know before you begin the search for a international study loan lender. Skipping this step could cost you thousands of dollars and lock you into a long-term loan that doesn’t work for you.
- What is it? Sometimes a lender will request physical or financial assets as a form of surety against your loan.
- Why is it important? Collateral can be seized if you fail to make your loan repayments, so you’ll need to pay close attention to the requirements.
- What’s normal? In some countries, like India, collateral is typically requested by loan providers and the value of the collateral may be significantly higher than the loan amount. In the US and UK, education loans don’t usually require collateral. Cross-border, international lenders, such a Prodigy Finance, also don’t require collateral.
2. Co-signer (also known as: co-borrower)
- What is it? A co-signer is someone who signs your loan with you, making them responsible for loan repayments, if you default. While sometimes called co-borrower in India, this term means something else in countries like the US and UK.
- Why is it important? Providing your lender with the means to recoup their money from someone if you don’t make your repayments is usually linked to lower interest rates from local banks.
- What’s normal? In India, it’s sometimes possible to obtain a loan without collateral, provided you have a strong co-signer. As an international student, you’ll probably also find it’s essential to have a co-signer for loans provided by banks in your host country. International lenders can help if you don’t have a co-signer at home or in your host country (or, if you simply don’t want to burden them).
3. Early repayment penalties
- What are they? Charges or fees you must pay if you choose to repay your loan early. You may also see the term prepayment penalties.
- Why is it important? This allows lenders to recoup some of the money they expected to earn through interest.
- What’s normal? Internationally, you won’t find too many banks have early repayment penalties. But, it does happen, and you should know about these charges in advance. International lenders, including Prodigy Finance, charge interest only on the outstanding balance; if you repay early, you’re saving on interest – and there’s no prepayment charge.
- What are they? There can be any number of fees attached to a loan, such as currency conversion fees, insurance and processing or admin fees.
- Why is it important? Some lenders are entirely transparent about fees (especially in countries where APR is mandated), whereas others aren’t – and you need to be aware of what you’re being charged and when.
- What’s normal? How and when fees are charged can vary widely between lenders. Always do what you must to fully understand the fees attached to your loan.
5. Grace period (also known as: moratorium period)
- What is it? A grace period is the time when you aren’t expected to make loan payments. It’s sometimes known as a moratorium period, though US and international lenders tend to use the term grace period.
- Why is it important? During this time, interest may still be applied to your loan. Understanding the terms of your grace period and the way interest is applied to your account may help you decide between loans. It’ll also give you time to work out your post-graduation budget.
- What’s normal? The interest applied to your loan during your grace period is usually compounded simply. Typically, grace periods last up to six months after course completion for full-time students.
6. Loan confirmation letter (also known as: sanction letter)
- What is it? This is a document from your lender which shows how much money you’re borrowing; it’s needed to prove to your university and the relevant immigration officials that you’re able to pay.
- Why is it important? Without this document, you may be unable to secure your spot or your study visa. You’ll want to get your hands on this document as soon as possible.
- What’s normal? Some lenders charge a fee to release your loan confirmation letter, but that’s not universal.
7. Loan tenure (also known as: loan duration or repayment cycle)
- What is it? This is the total length of time you have to repay your loan, beginning at the end of your grace period and ending with your last payment.
- Why is it important? The longer the loan tenure, the lower your interest rate, but the more you’ll pay over that time. The reverse is true for shorter loan tenures.
- What’s normal? There’s no international loan tenure norm, but you should expect to find options ranging between seven and twenty years. TIP: Look for lenders that offer flexible terms so you can find a timeframe that works for you.
8. Margin money
- What is it? Sometimes lenders require borrowers to pay them a portion of the total loan amount disbursed as the loan may only cover a portion of the full loan amount. The money paid to the bank before being returned as part of the loan is known as margin money in India (and margin may refer to different principles in other countries).
- Why is it important? If you need to pay into your lender to secure your loan, you’ll need to know quickly how much this is, when you’ll need to pay it and what fees or interest is attached to this amount.
- What’s normal? Margin money is most commonly found in India; it’s rare in countries like the US and UK.
9. Monthly payments (also known as: EMI)
- What is it? You may know this as Estimated Monthly Installments (EMI) and it refers to the amount you’ll pay each month after your grace period ends.
- Why is it important? Each borrower has a unique monthly payment (based on the amount they’ve borrowed as well as loan tenure). Also, with a variable interest rate, the actual amount due will vary from month to month.
- What’s normal? There’s no norm as it’s completely personalised (and will definitely fluctuate if you have a loan with a variable interest rate.
10. Variable interest rates
- What are they? Variable interest rates fluctuate alongside the market rather than remaining fixed throughout your loan tenure.
- Why is it important? When working with variable interest rates, your minimum monthly due will change according to the changes in interest rates.
- What’s normal? Variable interest rates are the norm for private education loans; these include MCLR, Prime, and LIBOR. The latter is a transparent, independently-set rate aligned with current market trades.
11. Annual percentage rate (APR)
- What is it? Annual percentage rate, or APR, is expressed as a percentage and it includes your interest rate plus all the fees and costs associated with your loan. That means it’s always higher than your interest rate.
- Why is it important? APR is used instead of interest rates as it shows you the effect of fees on the cost of your loan, as well as your interest rate. It’s far more accurate than interest rates alone.
- What’s normal? This varies from place to place. Lenders in countries like the US and UK are required by law to provide APR to their customers to avoid hidden fees.