Types of Collateral Security Acceptable for an Education Loan

An education loan with collateral is commonly called a secured education loan. This kind of loan requires the borrower to attach an asset as security when taking the loan. The security being attached can be tangible or intangible. 

Most nationalized banks and private sector banks offer loans up to INR 7.5 lakhs without any security. However, for loans exceeding the above amount, collateral or security is required by these lenders. NBFCs also offer loans with collateral but these should only be chosen in case the value of the collateral being pledged is less than the value of the loan amount being requested. 

A secured loan is easier to get sanctioned as the bank views the collateral as a security that can be used in case the borrower fails to repay the loan or the loan becomes an NPA or non-performing asset. In the case of a secured loan or loan with collateral, the loan amount sanctioned depends on the value of the collateral that is pledged with the loan. This kind of loan has a lower rate of interest and a longer repayment period. 

Borrowers can basically pledge three types of collaterals when applying for a secured education loan. They are as follows:

1. Immovable Assets - These can be real estate assets such as land, house, flat, etc. It should be remembered here that agricultural land or land that falls under the jurisdiction of Gram Panchayat is not accepted as collateral by lenders. However, non-agricultural open land that has clear boundaries is accepted as collateral for secured education loans. 
2. Intangible Assets - These are liquid securities such as fixed deposits, mutual funds, ULIPs, Life Insurance policies, Government Bonds, etc. The bank will keep the liquid securities such as FDs, However, the FD holder will continue to get any interest received on these intangible assets. Borrowers can pledge an old FD or even open a new FD for an education loan. 
3. Third-party Secured Education Loan - This is a little-known type of collateral accepted by lenders and includes immovable assets of a third party (relative or friend). 

The lender requires a number of documents when applying for an education loan with collateral. The lists of documents required differ from lender to lender. It also depends on the type of collateral being pledged for the loan. Since real estate collateral is one of the most commonly pledged security for an education loan, let us take a look at the documents required for it. Here too, the list of documents required for sanction of an education loan depends on various factors such as property type, purchase history, and location. Broadly, the following common documents are required by most lenders: 

• Property Title Deed 
• Registered Sale Agreement 
• Original registration receipt for the above agreement 
• Allotment Letter By Municipal Corporation / Authorised Govt. authority such as MHADA, CIDCO, HUDA, DDA, JDA, GIDC, etc 
• Previous chain of sale deed establishing title 
• Most recent property tax bill or most electricity bill having the same address 
• Approved plan/map if the property being pledged is a built one
• Link documents, that prove the ownership history of the said property for the previous 30 years
• A latest property tax receipt
• Occupancy proof

There can be additional documents depending upon the city from where the loan application is made.

Students can ideally get a secured education loan between INR 10 lakhs to INR 1.5 crore. It should however be remembered that the exact loan amount depends on a lot of factors, with the value of the collateral being pledged to be an important one. 

Nationalized banks such as SBI sanction loans up to 70% of the collateral value while Bank of Baroda sanctions 100% of the collateral value. Private Banks like Axis Bank sanction education loans up to 65-70% of the collateral and that too at a higher rate of interest. 

The RoI for an education loan with collateral is lower and depends on the lender to lender. However, students can get it at an RoI between 9.4% to 10.3%. 

A word of caution for those who are planning to apply for an education loan with collateral. Make sure that you have sufficient time in hand when applying for such a loan. This is because these loans take a longer time to get sanctioned. Some reasons for this are as follows:

• The bank needs to verify and cross-check all the documents related to the collateral being pledged. 
• Missing or wrong documents that may either lead to rejection of loan application or more processing time 

The best way to cross the first hurdle is by applying early so that the borrower has sufficient time to collect and submit the documents while the bank also has enough time to verify the collateral documents. Another tip is to get the valuation of the property and legal report be done in advance so that it reduces the time later on. The valuation or legal report has a validity period between three months to three years, so getting it done earlier would only benefit the applicant in the quick processing of their education loan application. 

As for the second hurdle, students can overcome it by taking the help of GyanDhan for free. 

We at GyanDhan assign a dedicated loan counselor who studies each case and then provides a customized list of documents that will help students submit their secured loan applications without any problem. Not just this, we also follow up with the bank and even coordinate with loan disbursement. And if students require pre-visa loan sanction, GyanDhan even comes to help in that. 

So, what are you waiting for? Get in touch with GyanDhan now and fly high to reach your dream foreign University.