Prodigy Finance Review (Education Loans for International Students – MBA, MS, Masters)

Anish TadimarriEducation loanLeave a Comment

prodigy finance

Prodigy Finance provides education loans to international students who want to pursue their MBA, MS, and other Masters degrees across 338 universities globally. Below, we look at a detailed analysis of their interest rates, fees, charges, application process, etc.

FinTown Rating: 2.5/5

Ratings by Category:

Category Rating
Interest Rate 1.5
Fees, Charges & Terms 2
Loan Margin 2.5
Application Process 4

 

  • Interest Rate: Although Prodigy Finance’s interest rate might look appealing at the outset, one needs to understand the impact of interest rate parity (explained in detail below) to understand that Prodigy does not offer the best interest rate
  • Fees, Charges & Terms: The processing fee of 2.5% is very high due to which our rating of their Fees & Charges is low. Prodigy does not require its borrowers to put a collateral as security for sanctioning the loan. Another positive is that there is no prepayment penalty.
  • Loan Margin: Students can borrow up to 70% of their total cost of education provided the student can show a source of funding up front for the remaining 30% that the student needs to borrow.
  • Application Process: Prodigy’s application process is extremely customer friendly with a completely digitized process.

Pros and Cons:

 

Pros Cons
No collateral and cosigner requirement High interest rate (due to interest rate parity)
Easy application process (Decision in 5 days) High Loan Processing Fee
No prepayment penalty Does not work with ALL universities
Timely disbursals Proof of Funds needed for funds other
than loan provided by Prodigy

Rates, Charges, and Terms

Interest Rate 5.0% – 7.5% (fixed) + Euribor or USD Libor base rate
Processing Fee 2.5% (Minimum 500 USD or 500 EUR)
Loan Repayment Term 7/10/15 years; No Prepayment Penalty
Amount that can be borrowed by students Full-time – Up to 100% tuition, Part-time – Up to 80% tuition

Interest Rate:

Prodigy Finance’s Interest rate is calculated as LIBOR Rate + Prodigy Margin, where the LIBOR rate is revised every 3 months. The interest rate averages around 9%-10%, which might seem like it is low.

However, the interest rate looks low because of a very interesting and rarely understood concept called Interest Rate parity.

Interest Rate Parity impact on Prodigy:

What is Interest Rate Parity? As defined by Investopedia, Interest rate parity is a theory in which the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate. Learn more about Interest Rate Parity on Investopedia.

The above definition is complicated theory for most people. Let’s look at this practically.

Interest Rate Parity is an important concept to understand for anyone borrowing across borders. The essence is that you can never compare interest rates from 2 different countries as ‘apples’ to ‘apples’.

So, in the case of Prodigy Finance, when their average interest rates come up to 9%, you cannot take that interest rate to compare interest rate from an Indian bank. When someone compares them as ‘apples’ to ‘apples’, they do not take into consideration the fact that the currencies across borders will vastly change through this time.

For simplicity purposes, lets take the real-life example of my education loan experience with SBI in 2008 for my education at University of North Carolina at Chapel Hill:

In 2008, for my undergraduate education in the US, I borrowed 8,00,000 INR (20,000 USD at an exchange rate of ~INR 40 in 2008) from State Bank of India (SBI) at an interest rate of 11%. In a hypothetical scenario, I could have borrowed the same 20,000 USD from Prodigy Finance at 9% given the interest rates are very comparable from then to now.

My borrowing from State Bank of India (SBI):

I started repayment of my loan in 2012 after my undergraduate degree finished. At that point, my principal grew to 12,14,000 INR (24,280 USD at an exchange rate of ~INR 50 in 2012). I ended up paying back 24,280 USD as soon as I got a job after my graduation in 2012.

Hypothetical case of borrowing from Prodigy:

For the same case of repayment in 2012, my principal would have grown to 28,231 USD at 9% interest rate. If I would have borrowed from Prodigy Finance, I would have been required to pay 28,231 USD to Prodigy Finance instead of 24,280 USD which I did to SBI.

Comparing SBI vs Prodigy (hypothetical):

Even though the interest rate from Prodigy is 2% lower (9% vs 11% at SBI), duee to currency fluctuations that result in interest rate parity, I would have had to pay 28,231 USD – 24,280 USD = ~4,000 USD (2,00,000 INR at an exchange rate of ~INR 50 in 2012) in extra interest with Prodigy Finance compared to SBI.

Even though this is an example of the past, given the way USD-INR rates are trending, it is predicted that INR will continue to depreciate moving forward.

For simplicity purposes, when comparing USD loans to INR loans, we recommend that one may choose a USD loan only when the interest rate differential is greater than 5%.

Is Prodigy Finance RIGHT for you?

Prodigy Finance is right for you if:

  • Interest Rate is 5% cheaper than an INR loan: Unless Prodigy Finance interest rate is 5% (or greater than 5%) cheaper than the interest you are getting from an INR loan in India, we recommend that one stay away. If you cannot find an INR loan cheaper than 15%, you may consider applying for a loan with Prodigy.
  • No collateral to offer: If one does not have a collateral to offer and does not qualify for loans from banks and NBFC’s, they have no other option.

When is Prodigy Finance NOT the best choice?

 Prodigy Finance is NOT right for you if:

  • You have a collateral to offer: If you have a collateral to offer, there is a lot of Indian banks offering educational loans.
  • You think Prodigy Finance’s interest is cheaper: If you are comparing Prodigy Finance USD loans to that of Indian banks’ INR loans as apples to apples, that approach is incorrect. As explained with interest rate parity above,one may choose a USD loan only when the interest rate differential is greater than 5%.

Repayment Terms

Grace Period:

There is a grace period offered for borrowers during which the borrowers are not required to make a payment, but the interest acrrues during this period. While the grace period for full-time students is 6 months, the grace period for part-time students is 3 months.

Loan term:

The loan term is for 7, 10, or 15 years depending on the borrower’s application and program.

Early Payment Penalty:

There is no early payment penalty which is excellent for people who want to close out their loans early (recommended).

Collateral, Cosigner & Guarantor?

There is no requirement of a collateral, guarantor or cosigner for an education loan with Prodigy Finance.

Loan Margin – Expenses Covered

Prodigy only allows students to borrow for Tuition needs, but requires students to show proof of funds to cover other costs before the loan is approved and disbursed.

  • Prodigy Finance can ONLY cover Tuition and the payment will be made by Prodigy Finance directly with the university:
    • Full-time students can borrow up to 100% of cost of tution
    • Part-time students can borrow up to 80% of cost of tuition
  • Minimum loan size (only made in USD or EURO): €15,000 (or) $15,000

Application Requirements & Eligibility

Students from more than 150 countries are eligible to apply for Prodigy Finance Education Loans. This includes students from India. However, Prodigy Finance only lends to students who want to study abroad. Students are only eligible for Prodigy Finance when their school of choice is not situated in their home country/present residence country. There is 3 exceptions to this policy listed below:

  • Students who have lived for less than 1 year in the country that they plan to study as on the date of application
  • If you have lived in your study country for less than 1 year when you apply for a loan, you are eligible
  • United Kingdom residents are eligible to study in the United Kingdom
  • United States residents (non-US citizens) are eligible to study in the United States

Loan Application Process

The loan application process with Prodigy Finance begins once the applicant gets an offer of admission from the university/college. Below are the 5 steps of applying for a loan:

Apply Online

The application is really easy to fill and it will take an applicant no more than 1 hour.

Link to application: https://prodigyfinance.com/get-a-loan

Get your interest rate

Prodigy Finance says that they are committed to reviewing and approving a conditional loan offer within 2 days of application. The conditional offer and the interest rate are valid for 2 weeks after the offer is made.

Upload personal documents

Below are the official documents needed once you accept the conditional offer from Prodigy Finance:

  • Proof of identity (passport, etc)
  • Proof of admission (official admission offer, etc)
  • Credit report (For Indians, Check CIBIL score by PAN Card)
  • Proof of address (Valid drivers license, Aadhaar card, etc)
  • Income Proof
  • Savings Proof
  • Scholarships or Sponsorship documents (as applicable)

Sign loan agreement

Once you arrive on university/college campus, you are REQUIRED to sign the loan agreements so that the disbursement of loan can take place.

The disbursement will take place directly to the university immediately after in accordance with the university policy on time.

Universities & Programs Covered:

Prodigy Finance covers 4 subject areas under Masters Programs:

  • Business
  • Engineering
  • Law
  • Public Policy

Many prominent universities across the world, a total of 338 universities across 18 countries work with Prodigy to finance education loans.

Please find a full list of schools here.

What other loan programs should I consider?

There are 3 other options that one may consider when looking for education loans to study abroad

Public Banks (SBI, Bank of Baroda, etc)

Public banks like State Bank of India, Bank of Baroda, and Andhra Bank usually have some of the best offerings for Education Loans.

Let’s take a closer look at SBI’s education loan program:

  • Interest Rate – 10.65% (concession of 0.5% for gir students)
  • Processing Fee – INR 10,000 per application
  • Loan Term – Up to 15 years
  • Collateral – Required
  • Cosigner – Required
  • Repayment & Grace Period – A grace period of 6 months is provided after graduation, but interest will accrue throughout the grace period.
  • Eligible courses – Graduate / Post-graduate courses in USA, UK, Canada, Australia, Europe, Singapore, Japan, Hong Kong and New Zealand
  • Loan Margin – Tuition + Expenses up to 20% of total tuition cost; The disbursment structure is on a pro-rata basis.
  • Loan Amount – 20 Lakhs INR – 1.5 Cr INR

NBFC’s (Credila, Avanse, etc)

If you are not able to furnish a collateral to get a loan with the private/public banks, you can apply for an education loan with one of the NBFC’s in the market like HDFC Credila, Avanse, or InCred Finance. The advantage with some of these NBFC’s is that they do not require a collateral. However, they still need a co-signer as part of the application.

Borrow in country of education

If one is attending university in the US, one can always apply for an education loan with the support of a local guardian in the US who can cosign the loan with the borrower. By doing so, students can borrow at very attractive rates from the country of education. In the US, students can borrow at interest rates as low as 2% USD rate.

Bottom Line?

Many are not familiar with the concept of interest rate parity that exists when you borrow across borders. Considering the fact that Prodigy Finance does not have very good interest rates compared to Indian banks, you might consider Indian banks as the primary option. If you are not able to furnish an education loan from an Indian bank, then, Prodigy Finance is a good option.

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