11 Important Education Loan terms to know | Student Loan Eligibility

So you have decided to pursue your masters; give yourself some credit – you have earned it. It is a once-in-a-lifetime chance and a worthwhile investment.

Whether you have applied to your dream universities or already received your acceptance letter, now is the time to consider how to finance your education. If you are thinking about taking out an education loan, here are 11 essential terms you need to understand before searching for an international student loan provider. Omitting this step could end up costing you thousands of dollars and binding you to a long-term loan that does not suit your needs.

1. Collateral

• What is it? Occasionally, a lender will ask for physical or financial assets as a form of security against your loan.
• Why is it important? Collateral can be seized if you fail to repay your loan, meaning you must pay close attention to these requirements.
• What is normal? In certain nations like India, loan providers typically request collateral, and its value may be significantly higher than the loan amount. In the US and UK, student loans generally do not require collateral. Cross-border, international lenders, such as Prodigy Finance, also do not require collateral.

2. Co-signer (also known as: co-borrower)

• What is it? A co-signer is someone who signs the loan agreement alongside you, making them accountable for loan repayments if you fail to pay. While sometimes referred to as a co-borrower in India, this term carries a different meaning in countries like the US and UK.
• Why is it important? Providing your lender with a guarantor who can repay the funds if you default is usually associated with lower interest rates from local banks.
• What is normal? In India, securing a loan without collateral is sometimes possible if you have a strong co-signer. As an international student, you will likely also find that having a co-signer is crucial for loans issued by banks in your host country. International lenders can assist if you lack a co-signer at home or abroad, or simply prefer not to burden anyone.

3. Early repayment penalties

• What are they? Fees or charges you must pay if you decide to settle your loan ahead of schedule. You might also see this referred to as prepayment penalties.
• Why is it important? This enables lenders to recover a portion of the interest income they anticipated earning.
• What is normal? Internationally, very few banks impose early repayment penalties. However, it does occur, and you should be aware of these fees beforehand. International lenders, including Prodigy Finance, calculate interest strictly on the remaining balance; if you pay early, you save on interest with no prepayment fee attached.

4. Fees

• What are they? There can be various fees associated with a loan, including currency exchange fees, insurance, and processing or administrative charges.
• Why is it important? Some lenders are completely upfront about their fees, particularly in regions where the Annual Percentage Rate is legally required, whereas others are not, meaning you must know what you are being charged and when.
• What is normal? The method and timing of fee collection can differ significantly among lenders. Always take the necessary steps to fully understand the charges linked to your loan.

5. Grace period (also known as: moratorium period)

• What is it? A grace period is the timeframe during which you are not required to make loan payments. It is sometimes called a moratorium period, although US and international lenders usually prefer the term grace period.
• Why is it important? During this interval, interest may still accrue on your loan. Grasping the conditions of your grace period and how interest is applied can help you choose between different loans. It also provides time to plan your post-graduation budget.
• What is normal? The interest added to your loan during the grace period is typically calculated using simple interest. Generally, grace periods extend up to six months following course completion for full-time students.

6. Loan confirmation letter (also known as: sanction letter)

• What is it? This is a statement from your lender indicating the amount you are borrowing; it is required to demonstrate to your university and immigration authorities that you have the financial means to pay.
• Why is it important? Without this document, you might fail to secure your admission or your student visa. You will want to obtain this paperwork as quickly as possible.
• What is normal? Certain lenders charge a fee to issue your loan confirmation letter, but this practice is not universal.

7. Loan tenure (also known as: loan duration or repayment cycle)

• What is it? This represents the total duration you have to pay back your loan, starting at the conclusion of your grace period and finishing with your final installment.
• Why is it important? A longer loan tenure results in lower monthly payments, but increases the total amount you pay over time. The opposite applies to shorter loan tenures.
• What is normal? There is no universal standard for loan tenure, but you should anticipate options spanning from seven to twenty years. TIP: Look for lenders offering flexible terms so you can find a schedule that suits your needs.

8. Margin money

• What is it? Lenders sometimes ask borrowers to contribute a portion of the total loan sum upfront because the loan may only cover part of the overall expense. The funds paid to the bank before being returned as part of the financing are known as margin money in India, while the term margin may imply different concepts in other nations.
• Why is it important? If you need to deposit funds with your lender to secure the financing, you must promptly determine the exact amount, the payment deadline, and any associated fees or interest.
• What is normal? Margin money is most frequently encountered in India and is uncommon in countries like the US and UK.

9. Monthly payments (also known as: EMI)

• What is it? You may recognize this as Equated Monthly Installments, representing the sum you will pay every month once your grace period concludes.
• Why does this matter? Every borrower has an individualized monthly installment determined by the borrowed sum and repayment period. Furthermore, when interest rates are variable, the actual payment required changes from one month to the next.
• What is typical? There is no standard amount since everything is entirely customized and will certainly shift if your loan features a variable interest rate.

10. Variable interest rates

• What are they? Unlike fixed rates that stay constant throughout the loan term, variable interest rates rise and fall in response to market conditions.
• Why does this matter? When dealing with variable rates, your lowest monthly payment will adjust whenever market interest rates shift.
• What is typical? Variable rates are standard for private study loans, including options such as MCLR, Prime, and LIBOR. The latter represents an open, independently determined rate that reflects active market transactions.

11. Annual percentage rate (APR)

• What is it? The annual percentage rate, or APR, is stated as a figure that combines your interest rate with all associated loan fees and expenses. Consequently, it always exceeds the base interest rate.
• Why does this matter? APR replaces standard interest rates because it demonstrates how additional charges impact the overall expense of your borrowing, offering a much more precise picture than the interest rate alone.
• What is typical? Standards differ by region. Financial institutions in nations such as the US and UK are legally mandated to disclose the APR to borrowers to prevent undisclosed charges.

This online seminar addresses the finest points of student loans, covering essential terminology including collateral, co-signer, margin money, grace period, APR, and more.

Education Loan Eligibility criteria:

Typically, applicants must be aged between 18 and 35 when applying for a student loan. They need to be enrolled in a graduate, postgraduate, or postgraduate diploma program. Additionally, the candidate must hold a confirmed admission to an institution recognized by authorities like UGC, AICTE, or the government.

Finding the right international study loan for you

Now that you are familiar with the vocabulary, you can begin searching for financing. Because this represents a major financial choice that shapes your future, investigating all accessible alternatives is essential. Make sure to look into:

• Local banks
• Lenders in your host country
• International loan providers such as Prodigy Finance.

Prodigy Finance has helped more than 13,900 students secure roughly $693 million in funding for their studies. Prodigy Finance does not require or accept collateral, co-signers, or margin money. There are no penalties for early payoff, and only a single administrative charge applies, with no extra fees assessed as long as your account stays in good standing.

Want to learn more about Prodigy Finance loans?

Prodigy Finance provides international student financing for master's programs in engineering, business, law, public policy, and health sciences at leading institutions across the US and globally. Discover what Prodigy Finance can provide for you and receive a commitment-free estimate in under 30 minutes. Apply now

This piece forms part of the FinLit collection of online seminars and written guides by Prodigy Finance. Explore the remaining articles here:

1. Prodigy Finance Answers your Top 10 Education-Loan Questions
2. Education loan 101: Understanding International Loan Terms
3. What's Annual Percentage Rate for Education Loan & 9 other FAQs
4. True cost of an Education Loan
5. The 7 stages of your International education loan
6. Applying for MS? Understand your education loan options...before you even apply to your school
7. International student loans: USD vs local currency