Education Loan

Guide on Education Loans with Collateral to Study Abroad in 2024

Guide on Education Loans with Collateral to Study Abroad in 2024

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Looking for education loans with collateral? GyanDhan brings a complete guide on collateral based education loans to study abroad, with eligibility, benefits, best lenders for collateral loans, tips & more.

Ananya Ghai
Updated on:  19 Feb 2024  | Reviewed By: 
| 49K | 9  min read

Pursuing higher education abroad can be a life-changing experience, but it often comes with a significant financial burden. To bridge the gap between your aspirations and your financial capabilities, education loans can be a viable option. When seeking substantial loan amounts or favorable terms, offering collateral as security can be a smart choice. 

Before moving further let’s briefly understand the types of education loans available. There are broadly two types of education loans as follows:

  1. list items Secured education loans: Secured education loans require borrowers to provide collateral as security for the loan. 
  2. list items Unsecured education loans: Unsecured education loans do not require collateral or any form of security from the borrower. However, these loans require a co-applicant.

What is an education loan with collateral?

Collateral security refers to the asset or property that a borrower pledges to a lender as a form of guarantee for an education loan. It provides the lender with a sense of security and reduces the risk associated with lending a large sum of money. In the event of loan default, the lender has the right to seize and sell the collateral to recover the outstanding balance.

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What are the different types of collateral accepted by the lenders? 

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

  • list items 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.
  • list items 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.
  • list items 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.

Know more about: Types of collateral accepted by public and private banks as security


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:

  • list items 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. 

  • list items 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.
  • list items 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.  


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Features of an education loan with collateral

  • list items Tangible or intangible security is required for an education loan with collateral.
  • list items Secured education loans offer higher loan amounts, up to INR 1.5 Cr, at lower interest rates (starting from 8.85%).
  • list items The interest rate for loans with collateral is typically lower than loans without collateral.
  • list items Use the Education loan interest and EMI calculator at GyanDhan to estimate EMIs and total interest.
  • list items Proof of parental income is not required, but having a good income can be beneficial.
  • list items Longer repayment duration is available for education loans with collateral.
  • list items Some banks, like SBI or BoB, offer no repayment during the study period, with interest accumulating.
  • list items Tax benefits under Section 80E may be applicable for secured loans from banks.
  • list items GyanDhan provides document pick-up service and connects applicants with branch managers or relationship officers of lending banks.

What are the eligibility requirements for collateral security for an education loan?

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.

  • list items The applicant must possess all the collateral papers of the security he is planning to attach. 
  • list items 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.
  • list items The applicant must have secured admission to a recognized institute. Most lenders ask for a copy of the acceptance letter with the loan application.
  • list items The applicant must have had a good academic history. The lenders ask the applicant to attach relevant mark sheets with the loan application. 
  • list items A good CIBIL score is a desirable criterion for most lenders when sanctioning an education loan. 

What are the benefits of education loan with collateral?

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:

  • list items 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.
  • list items 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.
  • list items 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.
  • list items 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.
  • list items 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.
  • list items 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.


Why should you apply for a collateral-based education loan early? 

  • list items 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.
  • list items Secondly, applying for an education loan early gives the borrower ample time to arrange all the documents required for the loan.
  • list items Thirdly, being assured that you can get the funds arranged on time will significantly ease the tension and stress.

Tips while applying for a collateral based education loan

  • list items Collateral evaluation: Get your collateral professionally evaluated to determine its value accurately.
  • list items Repayment capacity: Assess your financial situation and ability to repay the loan to avoid defaulting and potential loss of collateral.
  • list items Legal and documentation: Understand the legal requirements and documentation involved in collateral-based loans. Seek advice from legal professionals or loan advisors for compliance.
  • list items Loan terms: Thoroughly review the loan terms, including interest rates, repayment schedules, and associated fees or charges related to collateral security.

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.

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Frequently Asked Questions

What types of assets can be used as collateral for an education loan?

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

How is the value of collateral determined?

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).

Can I use collateral that is jointly owned or mortgaged?

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.

What happens if I default on the loan?

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.

What are the risks associated with collateral security for an education loan?

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.

Is collateral security mandatory for all education loans?

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.

Check Your Education Loan Eligibility


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