Guide on Education Loans with Collateral to Study Abroad in 2023

There are broadly three types of collateral accepted by the lenders in a secured education loan - 

• Tangible assets - 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.
• 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 belonging to a friend or a relative. The original documents of the collateral have to be submitted in this case as well.

There is no definitive answer for it as the amount of collateral required differs from lender to lender and from scheme to scheme. 

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 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.
   

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. 

Taking a secured abroad education loan, where you provide collateral as security, 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.

• 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.

Collateral security for education loans can offer numerous benefits, including access to higher loan amounts, lower interest rates, extended repayment tenures, increased chances of loan approval, and potential credit-building opportunities. However, it's important to carefully assess your financial situation, consider the value of the collateral, and review the terms and conditions of the loan before proceeding.

Comparing loan products and lenders can be difficult and confusing. If you too are in a dilemma, you can request a call back to know 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.

Various assets can be used as collateral, including real estate properties (such as residential properties), and financial investments (stocks, bonds, mutual funds).

The value of the collateral is typically determined through property valuation by experts appointed by the lender. They assess factors such as market value, condition, and authenticity (in the case of valuable possessions).

It depends on the lender's policies. Some lenders may accept jointly owned collateral, while others may require the consent and involvement of all owners. If the collateral is already mortgaged, the remaining equity may be considered.

If you default on the loan, the lender has the right to seize and sell the collateral to recover the outstanding balance. It's essential to make timely repayments to avoid losing your collateral.

Offering collateral involves the risk of losing the pledged asset if you fail to repay the loan. It's important to carefully consider your financial situation, repayment capacity, and the value of the collateral before committing to a collateral-backed loan.

No, collateral security is not mandatory for all education loans. Many lenders also offer unsecured education loans that do not require collateral. However, these loans may have higher interest rates and lower loan amounts compared to secured loans.