Collateral Security for Education Loan in 2022 (Complete Guide on Collateral)

    Updated on: 22 May 2022


    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 loans with collateral i.e. with security.

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    What is an Education Loan with Collateral?

    An education loan with collateral is a loan where the applicant attaches security along 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, the 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 authorized 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 a loan up to INR 69,30,000, for which he’ll need property worth INR 1 Cr (approx). 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.

    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.

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    What are the Different Types of Collateral Accepted by the Lenders? 

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

    1. Immovable Property - Lenders accept immovable property such as an independent house, flat, or plot, or any non-agricultural land with a clearly defined boundary. Agricultural land is not accepted as collateral. A bank-appointed evaluator will evaluate the property. All the original property documents are required to pledge collateral, such as registered sale deed, approved plan or map, link or chain documents. The rest of the document checklist is shared with you on applying for the loan via GyanDhan. 
    2. Liquid Assets -  It includes 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. 
    3. 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. If a bank official is denying third-party collateral, just get in touch with us and we will get it resolved for you. 

    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 the Education loan interest and EMI calculator at GyanDhan
    • For such kinds of education loans, proof of parental income is also not required. Well, although it is not a mandatory parameter, having a good income always helps. And, having a 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 a 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 loans 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's name or requesting a call back from our education loan expert.

      Name of Lender Bank   

    Maximum Education Loan Amount With Collateral

    State Bank of India

    Up to INR 1.5 Crores for Studying Abroad

    Bank of Baroda

    Listed Universities: INR 80 Lakhs
    Unlisted Universities: INR 60 Lakhs

    Axis Bank

    Up to INR 75 Lakhs (Flexible)

    ICICI Bank

    Up to INR 1 Crore

    Avanse

    The maximum loan amount varies and is based on the student’s profile and co-applicant income and CIBIL history.

    Incred

    Up to INR 60 Lakhs (Flexible)

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

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    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 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 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. 
    Check Your Education Loan Eligibility Apply Here

    Why should You Apply For An Education Loan Early? 

    • Firstly, as mentioned in the above point, loans with collateral have a longer processing time because there are multiple document submissions and 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 the stress. 
    • Therefore, we advise checking your loan eligibility and get in touch with our counselor even before securing admission to a university. 

    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 to 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. 

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