Education Loan

Education Loan Against Fixed Deposit

Education Loan Against Fixed Deposit

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Explore how you can take education loan against FD. In this you will find out everything you need to know about education loan against FD like how it works, required documents and much more.

GyanDhan
Rohit Gidwani
Updated on:  29 Jan 2024  | Reviewed By: 
Aman 
| 816 | 6  min read

Did you know that the number of Indian students studying abroad will reach a whopping 1.5 - 2 million by the year 2025? As of 2023, the current estimate stands at approximately 1 million. Studying abroad has become the talk of the town, and many people are opting for it. 

The main challenge that arises is arranging funds, and the solution often lies in education loans. Collateral-based education loans are considered the best, and here's an interesting twist – did you know that you can use your Fixed Deposit (FD) as collateral and take an education loan against it? Yes, you read it right. In this blog, you will learn various aspects related to using your Fixed Deposit as collateral for an education loan.

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How Does Education Loan Against FD Work? 

An education loan against FD works similarly to any other secured education loan, involving the borrower obtaining a lump sum and repaying it through equal monthly installments (EMI). This secured loan permits borrowers to access funds by using their fixed deposit as security. The Loan-to-Value (LTV) factor becomes crucial in this context, enabling the calculation of the percentage of funds available to the invested amount, namely the fixed deposit. Typically, the LTV for fixed deposits ranges from 90% to 95% of the total deposit value. In response to the question, "How much loan can I get against my FD?" - You can typically secure up to 90% of the total loan amount based on the value of your Fixed Deposit (FD).

 

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Insta Education Loan by ICICI Bank

ICICI Bank has introduced a new feature allowing customers to instantly receive a sanction letter for education loans of up to 1 Cr INR. This innovative service empowers numerous pre-approved customers to seamlessly secure education loans through a completely digital process, utilizing their fixed deposits with the bank i.e. you will be getting a student loan against FD. The Insta Education Loan facility provides borrowers the flexibility to fund higher education, whether for themselves, their children, siblings, or grandchildren, across accredited colleges and universities globally. While this stands as a noteworthy example of an education loan against an FD, various other lending options are also available for those seeking financial support for overseas education.

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Documents Required for Education Loan Against FD

The specific documents required for an education loan against FD may vary slightly among different financial institutions. However, common documents typically include:

  • list items Application Form - A duly filled and signed application form for the education loan.
  • list items Identity Proof - Photocopy of identity proof documents, such as a valid passport, Aadhar card, PAN card, or driver's license.
  • list items Address Proof - Photocopy of address proof documents, which may include utility bills, rental agreements, or voter ID.
  • list items Proof of Admission - Admission letter or confirmation of enrollment from the educational institution.
  • list items Course Details - Details of the course, including the fee structure and the duration of the program.
  • list items FD Certificate - A copy of the Fixed Deposit certificate that is pledged as collateral.
  • list items Income Proof of Co-borrower - Income documents of the co-borrower, who may be a parent or guardian. This can include salary slips, income tax returns, or bank statements.
  • list items Academic Records - Academic records of the student, such as mark sheets and certificates.
  • list items Collateral Documents - Legal documentation related to the FD being pledged as collateral, including the lien and charge documents.
  • list items Bank Statements - Bank statements of the borrower and co-borrower for the last six months.
  • It's advisable to check with the specific bank or financial institution for their exact documentation requirements, as they may have variations in their criteria.

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    Advantages of Taking an Education Loan Against FD

    Education loan against FD comes with some great perks. Let's explore these advantages that make this option a smart and simple choice for students.

  • list items Earning Interest on FD - When you create a Fixed Deposit (FD) approximately equivalent to the loan amount for your education loan, a significant advantage arises. As your FD remains locked until you fully repay your education loan, it continues to accrue interest. This dynamic results in an effective interest rate that is lower than the actual rate when viewed in this context.
  • list items Securing a Lower Interest Rate - Utilizing an FD as collateral presents a liquid and reliable asset for the bank in case of any repayment issues. This characteristic often positions it favorably as collateral, potentially leading to the negotiation of a lower interest rate. The bank perceives the FD's security positively, which can work to your advantage in securing more favorable loan terms.
  • list items Minimal or No Processing Fee - When opting for an education loan against an FD, it is a common practice for borrowers to open the FD with the same bank. This established relationship as an existing customer can translate into either no processing fee or a negligible one for your education loan. In instances where a processing fee is applicable, it may be refundable in certain cases, further enhancing the cost-effectiveness of the loan arrangement.
  • list items Prepayment Flexibility Without Penalties - If you choose to settle your loan before the agreed-upon tenure, you won't incur any prepayment penalties. This flexibility offers you the freedom to manage your finances efficiently, encouraging early repayment without imposing additional financial burdens.
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    Disadvantages of Taking Education Loan Against FD

    While taking an education loan against FD has its advantages, it's equally important to be aware of potential drawbacks. Let's explore some disadvantages to consider before opting for this financial arrangement.

  • list items Education Loan Tenure - The tenure of your education loan heavily depends on the duration of your Fixed Deposit (FD). The loan tenure will either be less than or equal to the FD tenure that you have established and pledged while obtaining the education loan.
  • list items Risk of Liquidity - If the borrower is unable to repay the loan, the bank is authorized to liquidate the FD and take necessary steps to recover the loan amount.
  • list items Limited Loan Amount - The loan amount attainable against an FD is often capped at a specific percentage of the deposit value. This limitation may present challenges for individuals in need of substantial funds for education-related expenses.
  • list items Reduced FD Earnings - Using an FD as collateral for an education loan limits access to its full earning potential. Since the FD serves as security, any interest or returns generated on it may be compromised during the loan tenure.
  • Now that you recognize the wisdom in opting for an education loan against FD, it's time to explore lenders that not only offer secured education loans but also accept FD as collateral. Various lenders, including public sector banks, private sector banks, and NBFCs, are available. Sorting through these options can be challenging, but this is where GyanDhan comes in to assist you. We have partnered with lenders of all types and can help you pinpoint the best loan by thoroughly analyzing your requirements. All the services provided by GyanDhan are absolutely free. Simply check your eligibility with GyanDhan and enjoy a seamless process for your overseas education loan.

     

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    Read also:

  • list items Guide on Education Loans with Collateral to Study Abroad in 2024
  • list items Education Loan Process for Abroad Studies
  • list items SBI Education Loan
  • list items Types of Education Loans for Abroad Studies  
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    Frequently Asked Question

    Can I use any FD as collateral for an education loan, or does it have to be with a specific bank?

    Typically, most banks offering education loans against FD prefer the FD to be with the same bank where you are applying for the loan.

    How much loan can I get against my FD?

    Yes, the loan amount against an FD is often capped at a specific percentage of the total FD value, which may vary among different financial institutions.

    Can I take an education loan on a recent FD?

    Yes, it is possible to use a recent Fixed Deposit (FD) as collateral for an education loan. Many banks and financial institutions accept recent FDs as security when providing loans. In this case, how much amount is locked in FD determines the loan terms. You can inquire with your bank or lender about their specific requirements and processes for using an FD as collateral for an education loan.

    Can I settle my education loan before the agreed-upon tenure without incurring any penalties?

    Yes, opting for an education loan against FD often provides the flexibility of prepayment without any additional penalties.

    Are the advantages of using an FD as collateral limited to lower interest rates, or are there additional benefits?

    Beyond lower interest rates, using an FD as collateral can offer benefits like earning interest on the FD during the loan tenure and minimal or no processing fees in many cases.

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