Back to Educational Loans

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So far, we learned about loans and credit scores. Let’s switch our focus to the main topic now: educational loans.

Educational loans can be of two types: secured and unsecured.

A secured loan, also called a loan with collateral, is where the borrower is required to provide collateral of some form, which is of greater value than the value of the principal amount. An unsecured loan, one without collateral, as the name suggests, is a loan where the borrower is not required to provide collateral of any form. Instead, the borrower will be judged based on the 5 C’s.*

  • Character: This can include your credit score, employment history (if any), and references.

  • Capacity: This can include your current income and debt, if any.

  • Capital: This deals with your current net worth, including but not limited to money in savings or investment accounts, investments, deposits, etc.

  • Conditions: The terms and conditions of the loan.

  • College/Course: This deals with the university and course you have chosen to pursue. It takes into account the reputation of your chosen university, along with your academic performance so far.

In brief, a secured loan is more common and gives you a lower interest rate, more lenient terms of repayment, and a higher sanctioned amount. If you have collateral of any sort, go for a secured loan!

Four Paths for Securing Loans

We said it before, and we’ll say it again.

Traditional banks are not the only source to secure a loan.

The educational loan market is a very lucrative one, and there are plenty of other players who offer competitive terms to get more customers. Your strategy should be to get a free quote from players across the market, compare the offerings, and pick the ones that suit your needs best. We will go into more detail on how to compare loan offerings later in this chapter. For now, let’s learn about the four kinds of entities.

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