Collateral for Education Loan: Everything You Need to Know

The primary objective of an education loan is extending financial support to students who wish to pursue education in India and Abroad. With the cost of quality education rising every year, it is becoming highly difficult and unaffordable for deserving students to study at premier institutes. After scholarships, education loans are the most preferred way of funding education. You’ll learn about Collateral for Education Loan in this article. 

Education loans are the most preferred way of funding education. Education loans are reliable and secure way to fund education and are being preferred by many. The process of education loan has been simplified over the years. Many Indian banks provide education loans to students. The students have the freedom to compare and analyze various products before selecting one. It is important to gather information related to education loans to be able to make an informed and wise decision. 

 Here are the advantages to students and their families:

  • Easy online application
  • Tax Benefits under section 80E
  • Flexible repayment terms
  • Long moratorium period
  • No margin money up to 4 lakhs 

In this article, let us look at:

  1. What is the difference between secured and unsecured loans?
  2. What is collateral for education loan? 
  3. Why do lenders ask for collateral?
  4. Collateral Free Loan Meaning
  5. Which types of collateral are accepted?

1. What is the difference between secured and unsecured loans?

Education Loans can be classified in to two types:

  • Unsecured Education Loans- loan without collateral
  • Secured Education Loans- loans with collateral

Before you proceed with loan application, here is what you have to understand about collateral security for education loan. 

2. What is collateral for education loan? 

Collateral security is the asset given to the loan provider as a guarantee against a loan, should the borrower default on their repayments. Collateral can be any of the following: Saving your money will increase your earnings and as such increase your ability to repay the loan. Building a credit history is a good way to ensure you have good financing options available to you should the need arise. Collateral is an asset pledged against your education loan. It can be a tangible asset like house or an intangible asset like a fixed deposit. 

3. Why do lenders ask for collateral?

Banks and financial institutions ask for collateral for education loan. If you fail to make the repayment of the education loan, the collateral is used towards the payment of the same. Education loans secured with collateral are known as secured loans. 

4. Collateral Free Loan Meaning

Many banks and financial institutions provide loan without collateral which are known as Collateral free education loans. Since the risk factor associated with secured loans is lower, the interest rate of secured loan may be lesser than loan without collateral. 

All banks and NBFCs require parents to join borrowers on an education loan. The third party guarantee is an assurance that if the original borrower fails to repay the loan due to any reason, the third arty guarantor will be legally responsible for making the repayment of the education loan. 

5. Which types of collateral are accepted?

There is primary and collateral security to submit to the banks. The common assets and collateral for education loan in India that can be pledged against the education loan are

  • House
  • Apartment
  • Bungalow
  • Shop
  • Fixed Deposit
  • Life Insurance

The other documents which are required to submit as a part of collateral value are: 

  • Academic History
  • Creditworthiness of Co-Borrower
  • Reputation of institution

Education loan for study abroad without collateral is required by lenders to minimize the risk of loss. However, the compulsion and value of collateral depends on each student’s profile. Weigh your options and select a lender that gives you clarity and a cost effective education loan. 

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