Education Loan Against Property: A Detailed Overview

Worried about arranging funds for your education? With a plethora of study loan options available in the market, you must not worry much! If you have a property to put as security, you can get an education loan at a lower interest rate for a longer loan tenure. A loan that can be taken by pledging property as a security is called a loan against property.

A loan against property (LAP) is a secured loan offered against a property mortgaged with the bank. This property can be a house, an owned land, or any other commercial premises. The loan amount sanctioned under the loan against property is determined based on the market value of the property, which remains as collateral with the lender until the loan amount is repaid.

Let’s walk through the features and process of education loan against property… 

Accepted Collateral for a Secured Education Loan

A secured education loan is a loan where the lender requires the borrower to pledge some sort of collateral against the loan amount. The value of the collateral must be more than or equal to the loan amount. For example, if Mr, A, requires an education loan of INR 50 Lakh then he must pledge collateral of atleast INR 50 Lakh.

Banks and NBFCs generally accept two types of collateral -

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  Tangible Collateral - House, Flat, Non-agriculture land, etc

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  Non-Tangible Collateral - Fixed deposit, insurance policy, or government bonds.

Can We Use an Education Loan on Property for Higher Education?

Yes, you can use the loan against property for higher education. This loan is offered to students who are going for higher education in India or overseas. LAP for higher education can be availed of for a part-time, full-time, or vocational course and bachelors or masters in the fields of management, engineering, hotel management, etc.

Benefits of Education Loan Against Property

The major benefits of LAP for higher education are as follows:

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  High Loan Amount - The maximum loan amount offered on a loan against property is mainly dependent on the current market value of the property mortgaged with the lender. Therefore, with the higher market value, students can avail themselves of a high loan amount for studies.

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  Low-Interest Rates - As the loan against property is a secured loan, the interest rate charged on the LAP is lower. usually, the mortgage loan rates start at around 7.20% p.a. from public-sector banks in India. From private lenders, this interest rate would be on the higher side.

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  Ideal Utilization of the Property - LAP helps in getting the real value of the property as a loan. Applicants can decide not to sell their property and still get sufficient money for their higher education and meet their requirements at reasonable rates of interest.

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  Easy Documentation and Process - The documentation process and approval system of loan against property for higher education are usually uncomplicated.

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  Flexibility in Repayment Tenures - Applicants can take flexible loan repayment tenure in the loans against property. The maximum loan tenure can be up to 20 years.

Application Process For Study Loan On Property 

Students can apply for a student loan on property by visiting the nearest bank branch or online. Applicants will be required to provide the required documents related to academic background, address identity, and property they will mortgage. In addition to this, they will be required to furnish the bank account statement of the co-applicant (if there is one). The lender will evaluate the repayment capacity of the applicant, and the current market value of the LAP based on which the loan amount will be sanctioned.

Disbursement Process of Education Loan Against Property

Process for disbursal of an education loan against property is done in the following steps:

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  Application - The applicant will have to fill the application form by giving all the relevant details.

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  Processing - The lender will evaluate the repayment capacity and will put the application into the process. Based on the current market value of the property, repayment capacity, and co-applicant, the lender will approve or reject the application.

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  Documentation - After the loan application approval, applicants will have to submit the required documents.

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  Loan Sanction - The bank will then sanction the loan and provide the letter after verifying the documents.

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  Property Evaluation - Your property’s current market value will be accessed by the relevant officials.

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  Loan Disbursal - The lender will transfer the education loan amount after successful verification and approval.

Repayment Method of Education Loan Against Property

Applicants should repay their LAP with EMIs as per the pre-specified loan tenure. Students can take benefit of facilities like part-payment, balance transfer, or foreclosure to make their study loan repayment easier. Part-payment lessens EMIs or loan tenure. Whereas, balance transfer enables borrowers to switch banks to get a lower interest rate. Foreclosure helps in the loan repayment in full before the tenure is completed. Therefore, it saves on the interest payment.

Collateral Documents Required for Education Loan

Collateral documents are most important for secured education loans as the education loan is entirely valued against the collateral provided. Given below are lists of collateral documents required for diverse collateral types like plots, buildings, and liquid collateral:

For Plots or Buildings:

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  Title deed & Sales deed
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  Registration receipt
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  Allotment letter
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  Chain deed for the last 30 years
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  Tax copy or electricity bill
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  Government-approved building plan
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  Occupancy Certificate and Completion Certificate if the property is constructed

For Liquid Security:

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  For fixed deposits - an FD Certificate
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  For insurance policy - Policy paper and Surrender Value Certificate
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  For government bonds - A bond certificate

Watch the video to know about collateral education loans before applying for the same

Can I Get an Education Loan on Property if I Already Have an Active Home Loan?

Banks offer loans based solely on the applicant's repayment capacity. Lenders will evaluate the repayment capability, and if after giving the home loans EMIs, the applicant still can pay the new loan installments, then the lender will sanction the education loan. But, there can be a situation where the applicant's home loan EMIs are so high that any further debt will disturb his/her monthly budget completely. In such a case, the lender will refuse to approve the education loan considering the applicant won't be able to repay it.

If you are also looking for an education loan to study abroad, check your loan eligibility and get free help in the entire loan process.

Frequently Asked Questions