Education Loan Against Fixed Deposit

Did you know that the number of Indian students studying abroad will reach a whopping 1.5 - 2 million by the year 2025? As of 2023, the current estimate stands at approximately 1 million. Studying abroad has become the talk of the town, and many people are opting for it.

The main challenge that arises is arranging funds, and the solution often lies in education loans. Collateral-based education loans are considered the best, and here's an interesting twist – did you know that you can use your Fixed Deposit (FD) as collateral and take an education loan against it? Yes, you read it right. In this blog, you will learn various aspects related to using your Fixed Deposit as collateral for an education loan.

How Does Education Loan Against FD Work? 

An education loan against FD works similarly to any other secured education loan, involving the borrower obtaining a lump sum and repaying it through equal monthly installments (EMI). This secured loan permits borrowers to access funds by using their fixed deposit as security. The Loan-to-Value (LTV) factor becomes crucial in this context, enabling the calculation of the percentage of funds available to the invested amount, namely the fixed deposit. Typically, the LTV for fixed deposits ranges from 90% to 95% of the total deposit value. In response to the question, "How much loan can I get against my FD?" - You can typically secure up to 90% of the total loan amount based on the value of your Fixed Deposit (FD).

Insta Education Loan by ICICI Bank

ICICI Bank has introduced a new feature allowing customers to instantly receive a sanction letter for education loans of up to 1 Cr INR. This innovative service empowers numerous pre-approved customers to seamlessly secure education loans through a completely digital process, utilizing their fixed deposits with the bank i.e. you will be getting a student loan against FD. The Insta Education Loan facility provides borrowers the flexibility to fund higher education, whether for themselves, their children, siblings, or grandchildren, across accredited colleges and universities globally. While this stands as a noteworthy example of an education loan against an FD, various other lending options are also available for those seeking financial support for overseas education.

Documents Required for Education Loan Against FD

The specific documents required for an education loan against FD may vary slightly among different financial institutions. However, common documents typically include:

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  Application Form - A duly filled and signed application form for the education loan.

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  Identity Proof - Photocopy of identity proof documents, such as a valid passport, Aadhar card, PAN card, or driver's license.

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  Address Proof - Photocopy of address proof documents, which may include utility bills, rental agreements, or voter ID.

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  Proof of Admission - Admission letter or confirmation of enrollment from the educational institution.

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  Course Details - Details of the course, including the fee structure and the duration of the program.

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  FD Certificate - A copy of the Fixed Deposit certificate that is pledged as collateral.

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  Income Proof of Co-borrower - Income documents of the co-borrower, who may be a parent or guardian. This can include salary slips, income tax returns, or bank statements.

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  Academic Records - Academic records of the student, such as mark sheets and certificates.

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  Collateral Documents - Legal documentation related to the FD being pledged as collateral, including the lien and charge documents.

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  Bank Statements - Bank statements of the borrower and co-borrower for the last six months.

It's advisable to check with the specific bank or financial institution for their exact documentation requirements, as they may have variations in their criteria.

Advantages of Taking an Education Loan Against FD

Education loan against FD comes with some great perks. Let's explore these advantages that make this option a smart and simple choice for students.

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  Earning Interest on FD - When you create a Fixed Deposit (FD) approximately equivalent to the loan amount for your education loan, a significant advantage arises. As your FD remains locked until you fully repay your education loan, it continues to accrue interest. This dynamic results in an effective interest rate that is lower than the actual rate when viewed in this context.

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  Securing a Lower Interest Rate - Utilizing an FD as collateral presents a liquid and reliable asset for the bank in case of any repayment issues. This characteristic often positions it favorably as collateral, potentially leading to the negotiation of a lower interest rate. The bank perceives the FD's security positively, which can work to your advantage in securing more favorable loan terms.

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  Minimal or No Processing Fee - When opting for an education loan against an FD, it is a common practice for borrowers to open the FD with the same bank. This established relationship as an existing customer can translate into either no processing fee or a negligible one for your education loan. In instances where a processing fee is applicable, it may be refundable in certain cases, further enhancing the cost-effectiveness of the loan arrangement.

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  Prepayment Flexibility Without Penalties - If you choose to settle your loan before the agreed-upon tenure, you won't incur any prepayment penalties. This flexibility offers you the freedom to manage your finances efficiently, encouraging early repayment without imposing additional financial burdens.

Disadvantages of Taking Education Loan Against FD

While taking an education loan against FD has its advantages, it's equally important to be aware of potential drawbacks. Let's explore some disadvantages to consider before opting for this financial arrangement.

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  Education Loan Tenure - The tenure of your education loan heavily depends on the duration of your Fixed Deposit (FD). The loan tenure will either be less than or equal to the FD tenure that you have established and pledged while obtaining the education loan.

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  Risk of Liquidity - If the borrower is unable to repay the loan, the bank is authorized to liquidate the FD and take necessary steps to recover the loan amount.

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  Limited Loan Amount - The loan amount attainable against an FD is often capped at a specific percentage of the deposit value. This limitation may present challenges for individuals in need of substantial funds for education-related expenses.

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  Reduced FD Earnings - Using an FD as collateral for an education loan limits access to its full earning potential. Since the FD serves as security, any interest or returns generated on it may be compromised during the loan tenure.

Now that you recognize the wisdom in opting for an education loan against FD, it's time to explore lenders that not only offer secured education loans but also accept FD as collateral. Various lenders, including public sector banks, private sector banks, and NBFCs, are available. Sorting through these options can be challenging, but this is where GyanDhan comes in to assist you. We have partnered with lenders of all types and can help you pinpoint the best loan by thoroughly analyzing your requirements. All the services provided by GyanDhan are absolutely free. Simply check your eligibility with GyanDhan and enjoy a seamless process for your overseas education loan.

Frequently Asked Question