Education Loans with Collateral Security to Study Abroad in 2024

Pursuing higher education abroad can be a life-changing experience, but it often comes with a significant financial burden. To bridge the gap between your aspirations and your financial capabilities, education loans with collateral security can be a viable option. When seeking substantial loan amounts or favorable terms, offering collateral as security can be a smart choice.

Before moving further let’s briefly understand the types of collateral for education loans available. There are broadly two types of collateral for education loans as follows:

• Secured education loans: Secured education loans require borrowers to provide collateral as security for the loan. 
• Unsecured education loans: Unsecured education loans do not require collateral or any form of security from the borrower. However, these loans require a co-applicant.

What is Collateral in Education Loan?

Collateral security refers to the asset or property that a borrower pledges to a lender as a form of guarantee for an education loan. It provides the lender with a sense of security and reduces the risk associated with lending a large sum of money. In the event of loan default, the lender has the right to seize and sell the collateral to recover the outstanding balance.

Different Types of Education Loan Collateral Accepted by the Lenders

There are broadly three types of education loan collateral accepted by the lenders in a secured education loan. Below are details of securities offered in education loans - 

• Tangible collateral security - Lenders accept immovable property such as an independent house, flat, plot, or any non-agricultural land with a clearly defined boundary. A bank-appointed evaluator will evaluate the property as student loan collateral.
• Intangible assets - These include assets like Fixed Deposits (FD), Life Insurance Policies (LIC), or government bonds. These assets are taken at the exact value as they can be converted into cash immediately. Some of the things that borrowers should keep in mind - FD should be with the same banks from where you are taking the loan. The loan can be taken on an existing FD or a new FD can be made for the purpose. The holder of the FD will earn interest on it as usual. LIC should be a maturing policy with a fixed maturity date to be pledged as collateral.
• Third-party collateral - If in the case, a borrower does not own collateral, they can pledge third party collateral for education loan belonging to a friend or a relative. The original documents of the collateral have to be submitted in this case as well.

How much Collateral is Needed for an Education Loan?

There is no definitive answer for it as the collateral security coverage and the amount of collateral required differs from lender to lender and from scheme to scheme. The required Collateral education loan differs from student to student.

Below mentioned is a brief comparison of a few leading lenders to help you estimate:
 

• Public sector banks like SBI require 70% of the collateral value equivalent to the loan amount. Bank of Baroda sanctions almost 100% of the collateral value as the loan amount. 

E.g., if the property value is estimated to be INR 1 Cr the loan amount sanctioned by SBI would be INR 70 Lakh whereas the Bank of Baroda would sanction INR 1 Cr. Whereas, a private bank like Axis Bank, sanctions 65-70% of the collateral value as the loan amount.

• The student loan collateral value is evaluated by authorized property evaluators and is generally lower than the market value but in compliance with the government rules and regulations of property evaluation.
• The education expenses covered by public sector banks like SBI are generally up to 90%. The remaining 10% has to be arranged by the student. An exception here would be the Bank of Baroda, which can cover 100% of the expenses for a few selected colleges. However, Axis Bank, a private bank, usually only covers 85% of the total expenses, which can be viewed as another downside.

Watch our video to understand Collateral Education Loans for studying abroad in 2024

Features of an Education Loan With Collateral

When applying for a secured overseas education loan borrowers must adhere to the following features.

• Tangible or intangible education loan security is required for an education loan with collateral.
• Secured education loans offer higher loan amounts, up to INR 1.5 Cr, at lower interest rates (starting from 8.85%).
• The interest rate for loans with collateral is typically lower than loans without collateral.
• Use the Education loan interest and EMI calculator at GyanDhan to estimate EMIs and total interest.
• Proof of parental income is not required, but having a good income can be beneficial.
• Longer repayment duration is available for education loans with collateral.
• Some banks, like SBI or BoB, offer no repayment during the study period, with interest accumulating.
• Tax benefits under Section 80E may be applicable for secured loans from banks.
• GyanDhan provides a document pick-up service and connects applicants with branch managers or relationship officers of lending banks.  

Eligibility Criteria for Collateral Security for an Education Loan

The education loan eligibility varies from lender to lender. The eligibility requirements are stricter for nationalized banks as compared to NBFCs as they offer loans at much less interest. You can check your loan eligibility at GyanDhan for free, to know how much loan amount you can acquire as per your profile. Let us take a look at some common eligibility criteria for applying for an education loan with collateral.

• The applicant must possess all the collateral papers of the security he is planning to attach. 
• The applicant (student) must be an Indian national. NRIs holding Indian passports can avail of education loans too. OCI students can get a loan for studies in India but not for foreign studies as they are no more Indian citizens.
• The applicant must have secured admission to a recognized institute. Most lenders ask for a copy of the acceptance letter with the loan application.
• The applicant must have had a good academic history. The lenders ask the applicant to attach relevant mark sheets with the loan application. 
• A good CIBIL score is a desirable criterion for most lenders when sanctioning an education loan.

What are the Benefits of an Education Loan With Collateral?

Taking a secured abroad education loan, where you provide collateral security for loan, can offer several perks compared to an unsecured loan. Here are some advantages:

• Higher loan amount: Securing the loan with collateral allows you to borrow a larger amount of money. Lenders are more willing to provide substantial loans when they have an asset as security, giving you access to the funds you need to finance your education abroad.
• Lower interest rates: Secured loans generally have lower interest rates compared to unsecured loans. By offering collateral, you reduce the risk for the lender, making them more likely to provide a loan at a lower interest rate. This can result in significant cost savings over the loan term.
• Longer repayment terms: Secured education loans often come with longer repayment terms, providing you with more time to repay the loan. This can make payments more manageable and reduce the financial burden while you're studying and establishing your career.
• Higher chances of loan approval: Securing the loan with collateral can make it easier to get approved, especially if you have a limited credit history or a lower credit score. The collateral assures the lender, increasing your chances of loan approval.
• Flexibility in collateral options: Depending on the lender, you may have flexibility in choosing the collateral to secure the loan. This can include assets such as property, investments, or other valuable possessions. You can select collateral that aligns with your financial situation and preferences.
• Potential credit building: Taking a secured loan and making timely repayments can help build your credit history. By responsibly managing your loan, you can establish a positive credit record, which can be beneficial for future financial endeavors, such as applying for other loans or credit cards.

It's important to consider that the collateral you provide is at risk if you're unable to repay the loan. Defaulting on a secured loan can result in the lender seizing and selling the collateral to recover the outstanding balance. Therefore, it's crucial to assess your ability to repay the loan and choose collateral that you can comfortably provide without jeopardizing your financial well-being.

Why Should You Apply for a Collateral-Based Education Loan Early?

Applying early for an education loan with collateral is necessary because the bank generally takes time to evaluate the collateral. Below are the top reasons why borrowers should apply early for education loans with collateral. 

• Firstly, loans with collateral have a longer processing time because multiple document submissions need to be verified. Furthermore, there are several stakeholders involved in the process, such as a lawyer, and a property evaluator. This is time-consuming.
• Secondly, applying for an education loan early gives the borrower ample time to arrange all the documents required for the loan.
• Thirdly, being assured that you can get the funds arranged on time will significantly ease the tension and stress.

Tips While Applying for an Education Loan With Collateral

• Collateral evaluation: Get your collateral professionally evaluated to determine its value accurately.
• Repayment capacity: Assess your financial situation and ability to repay the loan to avoid defaulting and potential loss of collateral.
• Legal and documentation: Understand the legal requirements and documentation involved in collateral-based loans. Seek advice from legal professionals or loan advisors for compliance.
• Loan terms: Thoroughly review the loan terms, including interest rates, repayment schedules, and associated fees or charges related to collateral security.

Comparing loan products and lenders can be difficult and confusing. If you too are in a dilemma, you can connect with GyanDhan Financial Services Pvt. Ltd. today to uncover your best options after a proper evaluation of your profile and loan eligibility. By doing so, you can make an informed decision that supports your educational aspirations while safeguarding your financial well-being.

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