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How to compare loans for international students

Prodigy Finance - February 10, 2020

Prodigy Finance looks at how to compare international student loans

Students interested in pursuing postgraduate study in their home countries probably have a good idea where to look for education loans to complete their degree. Each country has their own set of loan norms, with many offering federal or national options to keep the total cost of education in check.

International students don’t usually have it so easy. Government sources aren’t always available and most private banks can’t accurately price the risk associated with an international study loan.

But, that doesn’t mean international students don’t have options. There are multiple avenues to explore, including:

Not every student will find they have every option available to them, but every option should be explored in order to make the best decision possible; educational financing is an investment, but it still affects long term financial health.

How to compare international student loans

Education loans vary widely, which can sometimes make them difficult to compare with each other. In addition to the amount offered, you can expect differences in the type of interest offered, loan repayment duration and the benefits that come with financing.

You must consider a few factors when comparing loans to find the best one for you. 

What counts when you compare education loans?

The simplest tool to compare education loans is Annual Percentage Rate (APR); it’s a figure (expressed as a percentage) that includes the interest rate as well as all fees attached to the loan.

To understand APR, you’ll need to get the hang of interest rates first.

Generally speaking, there are two types of interest rates:

  • Fixed interest rates don’t change over time; the interest rate applied to the outstanding principle remains the same for the entire repayment period. If it’s 12.5% at the beginning, it will always be 12.5% at the end.
  • Variable interest rates fluctuate in line with a base rate which, typically, shifts in reaction to market factors. Base rates may also change in order to stimulate the market to shift in one direction or another. You may pay 11.85% interest for a period, then 9.5% for another.

Variable interest rates are comprised of two parts:

  • Your personal margin (expressed as a percentage) which is a reflection of your financial health or whatever criteria a lender puts in place to assess risk on the money they lend. This portion of your interest doesn’t change over time, it’s the base rate that fluctuates.
  • A base rate such as Prime, LIBOR, MCLR or others. Base rates can be set by independent groups, governmental direction, a consortium of banks, or any other body mandated to set and adjust the relevant base rate. Base rates may change daily, monthly, or just as dictated by market changes.

Together, the base rate and your personal margin are the interest rate you’ll receive with your loan offer.

APR is different from interest rates. It includes your interest rate as well as the fees associated with your loan. 

In the US and UK, lenders are required to provide the APR of their loan products to customers as it’s a more complete picture of the costs associated with a loan than interest rate alone. 

In addition, there are legal requirements stipulating the inclusion of the complete costs of a loan (provided the account remains in good standing; other costs may be incurred if the borrowers makes late payments or defaults on his or her loan).

How to compare loans using APR

So how do you compare loans using APR? This short video explains it best - and shows why you shouldn’t only look at interest rates alone.

 

Understanding the APR on your international student loan


And, don’t forget, the loan repayment duration will also contribute to the overall cost of your loan. While you’ll pay less if you choose a shorter loan repayment period (if given the option), you will need to set a realistic repayment budget

With a Prodigy Finance loan, you still have the option to make additional payments or pay more than the minimum. This will reduce the total cost of your loan and provides flexibility to pay more when it’s comfortable for you to do so.

Compare international student loans with differences

While APR is a useful tool to compare loans; it’s not without limitations. Most international students don’t receive offers that identical in all other respects.

You may be offered different principle amounts (the amount disbursed to the school or your bank account), loan tenures, and even currencies. All together, this means that interest rates and APR are only the first step in choosing the right loan for your international studies. 

Which factors are most important for comparing loans?

The most important factors in determining the right loan vary from person to person. Generally speaking, you’ll want to choose the product with the lowest total cost. But, because loans are so different, this isn’t always best.

Remember that you’ll need monthly repayments that enable you to live comfortably and make the minimum loan payments without struggle.

In countries where collateral or cosigners are required for educational loans, you may find that the strain of putting up your parents’ property as collateral outweighs the benefit of a slightly reduced interest rate.

Securing loans from private banks in many host countries also presents challenges, as they’re most often given on condition of having a local cosigner with a solid financial history - and even then, higher interest rates are often attached.

Education loans are your personal investment into your future and it’s, therefore, up to you to determine the most important factors in comparing loans. If you have questions about your specific situation, it’s worth turning to a trusted financial advisor who can look at your entire position and guide you accordingly. 

Can you use other factors to compare loans?

In addition to purely financial factors, you may find there are other support structures built into loan products that make a difference to your final decision.

International students often face a time crunch between acceptance to a programme and visa application deadlines. In some cases, the turnaround time of local banks doesn’t allow students enough time to make it to campus.

In some countries, it’s difficult to transfer large sums of money outside its borders and even when these challenges aren’t in place, the fees associated with money transfers and forex conversions can be prohibitive. As these fees won’t be included in loans disbursed into the borrower’s bank account in a different currency than their university, you’ll need to weigh them up seperately. (Which involves both time as well as money.)

You may find that an international lender or a private bank in your host country makes it easier and, thereby, more beneficial to you. Convenience can be a big deal when there are a lot of things on your plate.

And, while it’s not standard with other loan providers, you’ll find that Prodigy Finance offers a wide range of benefits, crafted to make the lives of international grad students easier. We offer discounts on money transfers and accommodation. We also work with cell phone companies to provide deals for local phones and SIM cards and offer career services support.

Whatever factors you use to compare loan offers, though, remember it’s best to consider as many options as you can so you can be certain you’re making the right choice for your international student loan.

Ready to learn more about Prodigy Finance loans?

Prodigy Finance offers no cosigner, collateral-free loans to eligible international students attending supported universities across the globe. If you're considering postgraduate study, you might want to consider a Prodigy Finance loan.

Prodigy Finance Ltd is authorised and regulated by the Financial Conduct Authority. 

Post updated for accuracy and freshness on February 10, 2020. Originally published on August 21,2018.


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