Car loan interest rate for all banks currently ranges from about 9.25% to 10%. Whereas education loan interest rate in India is generally much higher and goes as high as 15% with some banks. The primary reason behind this is the huge percentage of default that happens in student loans.

PaySense Fact File: As per this report, in 2016 about 8.76% of the total education loan amount disbursed to students in India was defaulted and counted as non-performing assets (NPA). This was a steep increase in bad education loans within a year of about 142%.

Reasons for Education Loan Defaults

  • Inability of the student to complete the course or degree
  • Inability of the student to secure a well-paying job
  • Indian industries battling over-capacity

The engineering courses contribute to a major number of defaults as the number of engineers India produces is much more than the industry demand.

Safety in Car Loans

Car loans are considered to be the safest asset for a bank as it is a material asset which can be claimed by the bank in case of a default. Same goes for a home loan as well. The bank can claim the house in case of a default. However, education loans are much riskier and do not come with any kind of an underlying asset.

In secured loans, you generally pay a much lesser interest rate than in unsecured loans. Personal loans and student loans are considered as unsecured debt. Any funds loaned under these products are not guaranteed by any collateral. Whereas home loans and car loans are secured loans.

This is the reason that private banks do not indulge much in education loans. More than 90% of the education loans are provided by the public sector bank who also see the highest proportions of NPAs. This high proportion of NPA combined with the lack of competition from private banks further prevents education loan interest rates from getting lower.

Avail Instant Digital Loans Within a Few Hours

Well, we now know how secured vs unsecured loans compare with each other in terms of the interest rate. Education loans are easy to repay for scholar students but below average students and drop-outs are more prone to defaults.Before opting for it, make sure that you know the complete education loan procedure.In case you need an urgent loan of up to INR 2 Lakhs, the app and web platform of PaySense will help you avail loan instantly within a few hours. With no hidden charges and one-time documentation, you can enjoy the benefits of availing loan from the comfort of your home.