USD loan vs. INR loan for studying abroad: which is the smarter choice?

Studying abroad is a life-changing decision, and choosing the right education loan is a crucial part of the journey. Many Indian students struggle to decide between taking a USD loan (foreign currency loan) or an INR loan (domestic loan in Indian rupees). Each option has its advantages and disadvantages, and making the right choice can save you thousands in repayment costs.

Key factors to consider

Before comparing the two, let's look at the most important factors:

• Interest rates

• Loan eligibility and co-signer requirement

• Repayment terms and currency fluctuations

• Processing time and documentation

• Tax benefits and additional costs

1. Interest rates: which one costs less?

• INR loan: Indian banks typically offer education loans at interest rates ranging from 9% to 13% per annum. These loans are subject to RBI regulations and usually require a co-signer (parent/guardian). (Source: economictimes.indiatimes.com)

• USD loan: Since these loans are in the currency of your study destination, you avoid currency exchange losses during repayment. For example, Prodigy Finance provides USD loans at competitive interest rates (starting from 8.34%* for co-signer loans) for eligible students.

Which is better? 

If INR interest rates are significantly lower, it might be better to take a domestic loan. However, it could be the smarter choice if the foreign loan offers better flexibility and avoids forex risks for international student loans.

2. Loan eligibility and co-signer requirement

• INR loan: Most Indian banks require a co-signer (parent or guardian) and often collateral for loan amounts exceeding INR 7.5 lakhs.

• USD loan: Some other lenders, like Prodigy Finance, do not require a co-signer or collateral, making it easier for students to secure funding independently.

Which is better? 

If you don't have a co-signer or collateral, a USD loan is often a better choice. International lenders, like Prodigy Finance, offer loans that are designed for students studying abroad and typically come with the flexibility to choose between co-signer or no co-signer loans, competitive interest rates, and no requirement for a credit history in India. This makes them a more accessible option for students who may not qualify for traditional INR loans from Indian banks.

3. Repayment terms and currency fluctuations

• INR loan: You take the loan in INR and repay in INR, but since you pay tuition and living expenses in USD or EUR, you may face exchange rate losses.

• USD loan: Since the loan is disbursed and repaid in USD, you don't need to worry about rupee depreciation, which can increase repayment costs if you take an INR loan.

Which is better? 

If you expect the rupee to weaken against the dollar, taking a USD loan can help you avoid rising repayment costs due to unfavourable exchange rate fluctuations.

For example, suppose you take a USD 50,000 loan when 1 USD = ₹80. Your total repayment amount in INR would be ₹40 lakh.

If the rupee weakens to 1 USD = ₹85, your repayment in INR increases to ₹42.5 lakh, making your loan more expensive.

By taking a USD loan, you repay in the same currency as your future earnings (if you work abroad), reducing currency risk and potential repayment hikes.

4. Processing time and documentation

• INR loan: Requires detailed documentation, including income proof, property documents (for collateral loans), and extensive paperwork. The approval process can take weeks to months.

• USD loan: Private lenders like Prodigy Finance offer a faster, digital application process with minimal paperwork. Many students receive pre-approval within a few days.

Which is better? 

If you need quick approval with minimal hassle, a USD loan is the way to go.

5. Tax benefits and additional costs

• INR loan: You can claim tax benefits under Section 80E of the Income Tax Act, which allows deductions on loan interest paid.

• USD loan: Currently, tax benefits under Section 80E are not available for USD loans taken from foreign lenders. However, Prodigy Finance provides an Interest Statement upon request, which may be used for tax-filing purposes in some countries. Borrowers should consult a tax advisor to determine eligibility for deductions in their country of residence.

Which is better? 

If tax benefits are a priority, INR loans provide an advantage. However, if you are considering a USD loan, check with a tax consultant to understand possible deductions in your country.

Final verdict: which loan should you choose?

When should you choose an INR loan?

✅ If you have a co-signer and collateral

✅ If you qualify for a low interest rate (<9%)

✅ If you want tax benefits under Section 80E

When should you choose a USD loan?

✅ If you don’t have a co-signer or collateral

✅ If you want faster loan approval and a simpler process

✅ If you want to avoid forex risks when repaying your loan

Why Prodigy Finance?

Prodigy Finance is a great option for students who want a no-collateral education loan to study abroad. It offers flexible loan options, allowing students to choose between co-signer and no-co-signer loans. Since the loan is in USD, students studying in the US, UK, Canada, and Europe can avoid currency exchange risks and secure funding quickly.

• Easy online application

• No co-signer or collateral required

• Flexible repayment plans

• Loans in the currency of your study destination

Want to know your loan options? Check your eligibility now! Apply now! 

Choosing between an INR and a USD loan depends on your financial situation, eligibility, and future repayment plans. If you prefer a straightforward, hassle-free loan without needing a co-signer, Prodigy Finance's USD loan might be the smarter choice.

Loan and promotion offers are subject to our eligibility, funding, and credit assessment criteria. The loan amount is subject to the cost of attendance limits set by schools.