Soaring expenses on education have become a big hurdle for students and the majority of them are looking for an education loan with reasonable interest rates either from Indian banks or from any International lenders. So, students who intend to study abroad and are primarily planning to take an education loan often get caught up between choosing Indian banks or preferring International lenders like Prodigy Finance. International loan lenders like prodigy finance are one of the progressing banks and have never failed to attract customers with their best service elements like easy registration procedure, online documentation process, easy sanction of loans, etc. Therefore, students find International lenders like Prodigy Finance as a very lucrative option as they offer a comfortable loan process but do students ever wonder what this comfort might cost them? Read this article to gain a deeper insight on how Prodigy Finance Vs Indian banks works and which one is expensive.

How Prodigy Finance works? 

Prodigy Finance was launched in 2007 by providing student loans to the students who experienced difficulty in financing their education. As soon as Prodigy Finance had raised $240 million in equity and debt funding in August 2017 they transformed into a commercial lender. Prodigy Finance provides education loan for abroad studies without any collateral or co-applicant on the basis of the student’s academic profile, their future earning potential, and the country they decide to study.  

How is your Prodigy Finance interest rate determined?

Before understanding how Prodigy Finance calculates their interest rates, let’s first understand the types of interest: 

a. Fixed interest: As the name suggests, the interest rates are fixed and are not changed with the change in the market factors. It is also known as flat rate as the interest you pay on your loan amount does not change over time. It remains persistent throughout your repayment tenure. For eg: If the rate of interest is 12% during the time you took the loan, interest rates will remain the same i.e. 12 % until the person has repaid the loan in full

b. Variable interest: Variable interest rates are not fixed and are subject to change with the change in the market factors. For eg: a student may pay 12.5% for one period, then 10% for another.

Prodigy education loan mostly uses a variable model where the interest rate alters with the shift in the market factors across the globe. Variable interest rates are divided into two parts: 

a. Fixed Margin: This loan always floats on top of the base rate for any variable interest loan. (Fixed rates is determined by Prodigy Finance)

b. Base rate: This is the variable portion. This rate oscillates differing from country to country. The base rates like MCLR - Marginal Cost of Funds in India, LIBOR, and Prime rates in other countries change periodically because of the shift in the market. (Prodigy uses 3-month LIBOR as the base rate)

If a student has a variable interest loan, these two components will be considered to calculate Prodigy Finance interest rates. International loan lenders like Prodigy Finance calculate education loan interest rates on the basis of criterion rates called LIBOR (London Interbank offered rate). 

What is LIBOR?

Libor is the interest rate through which major global banks exchange or lend short term loans to one another. As the LIBOR rates are at its lowest due to the pandemic, Prodigy’s interest rate is also low. But in the coming years, it is expected to escalate conspicuously. 

Prodigy Finance usually considers 3 months LIBOR as the base rate for loans. So, the applicable rate is directly dependent on the currency of your loan. Therefore, it is necessary to understand the LIBOR changes in the market. Refer to the LIBOR forecast to understand how LIBOR changes. 

We have already discussed this before in our video which is taken from the 10th episode of the web series called - – “Loanflix- Abroad education loan simplified”. Watch Loanflix videos for a much more detailed understanding of these International student loan lenders like prodigy education loans.

Advantages of processing through Prodigy Finance

Prodigy Finance education loan has advantages like: 

• Provision of loan on the basis of study abroad program
• No collateral or guarantor required
• Evaluates the application on the basis of future earning potential
• Lends loan in accordance with the policies of your university

If you are an aspiring student applying for an abroad education loan, you can request a callback from the WeMakeScholars team. The financial officer will get back to you and guide you until sanction. Please note there is NO fee charged by WeMakeScholars. 

How Indian Banks works?

In India, the banking system works with its own benefits and limitations while processing loans. They have their own dedicated target market and may differ from rural to urban. As being an Indian, taking education loans from Indian banks would be more beneficial as compared to international lenders because of Section 80E. 

Section 80E of the Income Tax Act, 1961, you get an exemption on the education loan tax i.e. the interest you pay on the educational loan can be claimed as a deduction. Read more on Section 80E to understand the tax benefits and how to claim it. 

Apart from all these, Indian Banks do not bother if 3-4 EMI’s are not paid on time and will intimate you in case of late payment. Therefore, most of the students opt for Indian banks because of the leniency and exception of no payment during the moratorium period. 

Opting for an education loan through Indian Banks would be the smartest choice as students can avail of all the benefits and can utilize tax benefits to the maximum. But as the process for student education loans through Indian Banks can be daunting and time consuming, WeMakeScholars has made this more convenient and easier. You can request a callback on our website and our Financial Officer will reach you in a day or two. Please note, as being a Digital India Campaign supported organization, all the services are at free of cost. 

Why Indian Banks over Prodigy Finance? 

1. Processing fee- Indian Government banks processing fees varies upto 10K depending on the bank you opt for. Other Indian private banks charge you up to 1-1.5% as a processing fee on the loan amount. On the other hand, International lenders like Prodigy Finance charge 4% as a processing fee. Most of the students do not pay enough attention to that as Prodigy Finance adds the processing fee directly to your loan amount which means if you take an education loan of 40 Lakhs, then the student ends up paying extra 1.6 lakhs only as a processing fee. 

2. 80E Income tax benefits: When a student takes an education loan through Indian Banks, the student can reduce their interest rate up to 2-3% under 80E of Income Tax. The student can avail this tax benefit only if the candidate is processing their education loan through Indian banks and not an International lender like Prodigy Finance. 
Before taking an education loan, you should calculate your income tax benefit in prior, if you are unable to calculate your income tax benefit, you can use the Tax Rebate Calculator to enumerate your tax benefits across various parameters easily. 

3. Government Subsidies: If you take an education loan through Indian Banks, there are a few subsidies of the Indian Government for students from minorities or students from SC/ST, OBC, EBC. These subsidies waive off the moratorium period’s interest rate of the student.  This advantage is only applicable if you take an education loan from an Indian Bank and not through an International lender like Prodigy Finance. 

4. Repayment Policies: Students borrowing an education loan through Indian Banks get a moratorium period i.e. course period plus 6months or 1 year whereas when you go through an International lender like Prodigy Finance, students are expected to start their education loan interest payment from the very next month. 

5. Currency Fluctuations: The INR has been consistently depreciating in contrast to USD for years. According to the data of the Reserve Bank of India, from 1979 to 2017, the INR rate is depreciating at an average of 5% per annum. This changes the entire metrics as the current dollar rate will be 5% higher a year later. So, if the student takes an education loan through an International lender like Prodigy Finance, the student repays the amount in terms of US dollars whereas in the case of Indian Banks the student has to repay the loan amount in INR which eventually is much lesser as compared to International lender. To have a more detailed understanding of this, go through this video on USD VS INR Education loan.
Refer to the image below for further reference. 

Already have taken an education loan from an international lender? DO NOT WORRY. Our team at WeMakeScholars will help you take over/transfer that loan to an Indian lender and can save you lakhs in repayment. Contact our team to know more. As we are Government funded, we do not cost anything. It’s a free service. 

Conclusion

The education loan process in prodigy finance is quite hassle free and quick because of which most students opt for Prodigy Finance but now you know how expensive the international lenders can be compared to other choices in India. They surely are a dream saviour for students who do not have a collateral and an eligible co-applicant but if you have collateral and are still going for an International lender like Prodigy Finance, that would totally be an ill-considered decision.

Hence, if the student is eligible for an Indian Bank or NBFCs, that should always be their first choice. In many cases, students first opt for Prodigy Finance because of their service elements and later struggle because of the unclear terms and conditions. Because of these reasons, people apply for an education loan through WeMakeScholars as we guide students through the entire loan process and explain the bank's terms and conditions in prior to avoid erroneous outcomes. 

Disclaimer: This article on Prodigy Finance Vs Indian Banks is ONLY intended to empower students by explaining the complete details, helping them to make an informed decision about their foreign lender.

Note: WeMakeScholars is an organization funded and supported by the Government of India and is associated with 10+ public/private banks/ NBFCs in India. We have helped millions of students by connecting them with the best education loan lenders across India. We have a dedicated financial team to assist you with any education loan related query. As we are Government funded, there is NO FEE charged for the services offered.