All You Need To Know About Education Loan with Collateral

Published date: 13 Dec 2019 Updated on: 01 Apr 2020

In the past, if a student planned to go abroad for studies, then they definitely needed to have a fat bank balance to support their education abroad. However, things changed in 1995 when SBI started providing education loan for studying abroad. From 2001, the Indian banking sector started giving out education loans, and since then, Lakhs of education loans in India for study abroad were taken by students from different financial backgrounds to convert their dreams of attaining higher education into reality.

An education loan extends financial support to needy students who wish to pursue higher education in India or abroad. An education loan covers the cost of tuition and other associated costs of the program. Education loans can broadly be divided into two categories - secured or education loan with collateral and unsecured or education loan without collateral. Most public and private sector banks as well as NBFCs give education loans to students. In this blog, we will discuss the A to Z of education loan with collateral i.e. with security.

What is an Education Loan with Collateral?

An education loan with collateral is a loan where the applicant attaches security with the loan application. This security can be movable (FDs, LIC Insurance etc.) or immovable assets (non-agricultural land, house, etc.). Most public banks in India require collateral security to sanction a loan application over INR 7.5 Lakhs.

Why Do Public Bank Education Loans Need Collateral? 

Collateral helps a lender recover its dues in case the borrower fails to repay his/her educational loan. Educational loans are increasingly becoming an NPA (Non-Performing Asset) for banks and other lenders. An asset becomes an NPA if it stops generating income for the lender. In the financial year that ended in 2017, seven Public Sector Banks had a gross NPA ratio in double digits. And, this trend is not new and has been constantly on a gradual rise. For Engineering courses, 9.76% of education loans became NPA, while for MBA, 5.59% of education loans became NPA. Hence, lenders have become cautious in providing education loans without collateral for bigger amounts. 

How Much Collateral is Needed for an Education Loan?

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:

• *PSBs like SBI sanction 70% of the collateral value as loan amt. BoB sanctions almost 100% of the collateral value as loan amt. E.g. if the property value is estimated to be INR 1 Cr, loan amount sanctioned by SBI would be INR 70 L and by BoB would be INR 1 Cr. Whereas, private bank, Axis, sanctions 65%-70% of the collateral value as loan amt. @ higher interests, which is why GyanDhan suggests PSBs if you have collateral security to offer. 
• *The collateral value is evaluated by authorised property evaluators, and is generally lower than the market value but in compliance with the Govt. rules and regulations of property evaluation.
• *The education expenses covered by PSBs like SBI are generally up to 90% of the tuition fee + living costs breakdown, e.g. if the fee + living cost breakdown presented by a student is INR 77L, the student is only eligible for loan up to INR 69,30,000, for which he’ll need a property worth INR 1 Cr (approx). Remaining 10% has to be arranged by the student. An exception here would be 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.

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 proper evaluation of your profile and loan eligibility.

Features of an Education Loan with Collateral

Though the features of an education loan vary from lender to lender, we have listed below some common features of an education loan with collateral as offered by leading lending institutions.

• An education loan with collateral always requires the student to attach tangible or intangible security.
• Students can get high loan amounts sanctioned in secured education loans, up to INR 1.5 Cr from many PSBs at the lowest interest rates (8.85% onwards). 
• The rate of interest for an education loan with collateral, with all other parameters being the same, is always lower than that for an education loan without collateral. 
• Aspirants who want to find out the approximate EMIs and the total interest they would have to pay for the interest rate being offered to them can use Education loan interest and EMI calculator at GyanDhan. 
• For such kind of education loans, proof of parental income is also not required. Well, although it is not a mandatory parameter, having good income always helps. And, having low income doesn't mean that you won't get a loan, so income shouldn’t be considered a deterrent.
• Applicants get a longer repayment duration for such education loans.
• There is no repayment during the study period if a loan is taken from PSBs like SBI or BoB. You don't have to pay anything while you study; interest gets accumulated with the principal amount. 
• If a secured loan is taken from a bank (public or private), the borrower and the co-applicant enjoy tax benefits as per Chapter VI-A of Section 80E. This also holds true for unsecured loans, provided that the loan is taken from a bank (and not an NBFC). 
• GyanDhan also offers free document pick-up service for SBI loans in Metro cities, Delhi, Mumbai, Pune, Hyderabad, Bengaluru, and Chennai and connects applicants directly with the Branch Managers or Relationship officers of other lending banks. 

Lenders Providing Education Loans with Collateral

Public and private banks, as well as NBFCs, provide education loan with collateral to Indian students. Let us take a look at a few popular ones and also discuss the maximum loan amount for such a loan. Other details can be compared by clicking on the lender name or requesting a call back from our education loan expert.

If students are confused about which bank to approach for their education loan with collateral, we suggest them to get in touch with our loan counsellors who will guide them about the best options as per their profile and eligibility. 

Eligibility for Education Loans with Collateral

The education loan eligibility again varies from lender to lender. The eligibility requirements are stricter for nationalised banks as compared to NBFCs as they offer loans at much less interest. You can check your loan eligibility at GyanDhan 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 passport can avail 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 criteria of most lenders when sanctioning an education loan. In case your CIBIL score is low or your academics aren’t great, you should get in touch with GyanDhan’s education loan counsellors right away. They can guide you through the steps that need to be taken.

Benefits of Education Loans with Collateral Over Unsecured Loans 

• An education loan with collateral has several benefits over education loans without collateral. Let us take a look at some of them:
• All banks (private and public) and NBFCs give education loans with collateral. 
• An education loan with collateral has a higher chance of approval than an education loan without collateral. 
• Usually, education loans with collateral have a longer moratorium period than education loans without collateral.
• Almost all countries accept education loans with collateral as proof of funds.
• Education loans with collateral can be easily availed for some countries, courses, and universities. These include U.S., U.K., Canada, Australia, New Zealand, and many European countries. Unsecured loan providers, on the other hand, have tighter criteria.

Barriers Along the Way
There are a few barriers along the way to an education loan with collateral. Let us discuss them too so that our readers can make an informed decision.

• An education loan with collateral needs an asset that has to be attached as security for the loan. For students from a weak financial background, this becomes difficult. 
• The loan sanction process is longer than that for education loans without collateral. This is because the lender needs time to verify all the documents related to the attached security. 

How GyanDhan Makes it Easy to Get an Education Loan with Collateral 

Even though getting an education loan with collateral is simpler than getting an education loan without collateral, the process is still long and filled with numerous roadblocks. Banks may also reject or delay the loan sanction because of lack of some documents. All such pitfalls can be avoided if our readers take the help of GyanDhan - India’s first student financing platform. Some of the ways in which GyanDhan can help study abroad aspirants are mentioned below:

• We execute a simple 3-step loan application process that helps in easier and faster sanctioning of loans. 
• Our Education loan counsellor (ELC) will assess the profile of every student who approaches us and will recommend the best lender for their case after closely evaluating their eligibility. 
• We give the student the upper hand to finalize the lender after recommending the best option as per our expertise. Once the lender is finalized, we then send over a customized list of documents that will be needed for their loan application.
• GyanDhan will also help students with submitting the documents. If the student resides in a Metropolitan area and applies to SBI, we will collect the documents from their doorstep for free and submit them in the associated branch. In case the student does not reside in a metropolitan city, we will arrange for a meeting with the concerned bank manager. For students who apply to private banks, the designated relationship manager of the bank will collect the documents from their doorstep. And, if the student has chosen an NBFC for an education loan, their documents just need to be uploaded online on our website. 
• Once the documents are submitted, we coordinate with the lender and help expedite the process. We even negotiate the rate of interest (if not fixed) with the private lenders and NBFCs on behalf of the student. We can also help with the extension of the repayment tenure (if needed).
• We do not stop once the loan is sanctioned. Rather, our services are for a lifetime. We also help coordinate the loan disbursal according to the fee schedule of the university. 
• Since some lenders do not disburse loans without a student visa, we even help in pre-visa disbursal, if required. Actually, policies are mostly in place but don't get followed up. We, at GyanDhan, make sure you get the money before the visa if needed. 

A secured education loan has many benefits over an unsecured education loan, and we, at GyanDhan, suggest students opt for it if they can provide adequate collateral. Third-Party collateral (belonging to a close relative) is also acceptable. If you still have any doubts, get in touch with us now and be prepared to fly abroad for your higher studies, without financial deterrents holding you back.