Banks and NBFCs prefer students with confirmed admission to top academic institutes as collateral for education loans; such students have higher chances of landing gainful employment after finishing their courses.
Collateral for student loans may take the form of immovable properties, liquid securities, or personal possessions; however, certain assets don’t qualify as collateral.
Real estate
If you’re a parent looking to send their child abroad for higher education, collateral security options should be carefully considered. Collateral for education loans can help lower both spending and interest rate costs for your family; various assets, including real estate and liquid securities (fixed deposits, term life policies, and government bonds are accepted as collateral) may act as such collateral security, but agricultural land and gram panchayat properties cannot.
Education loans often rely on immovable property as collateral security, including homes, flats, and non-agricultural land. Property values will be assessed by a bank-approved valuator who reviews all related documents, takes pictures of the property in question, and submits a report; in most cases, the bank only approves 70% – 80% of the realizable value as collateral against an education loan.
Banks also accept other types of collateral security as collateral for education loans, including liquid securities and personal possessions such as jewelry or art objects; this may need to be evaluated and verified before being accepted as collateral by the bank. In certain instances, students can also use personal savings as collateral security if all other options have been exhausted.
Third-party collateral security for education loans refers to when a borrower pledges assets owned by friends or relatives as collateral. Several banks accept third-party collateral for smaller loans, provided it meets all bank requirements in terms of being in good condition and liquidity; additional power-of-attorney documents allow access to it; chain or link agreements may also need to be signed.
Liquid securities
A collateral-free education loan does not require you to pledge any assets as security for its repayment, making them ideal for funding higher studies through NBFCs. However, these loans have higher interest rates compared to secured ones and typically require financial co-applicants as co-signers in case repayment defaults.
Liquid securities include fixed deposits, term insurance policies, and government bonds. Lenders will assess their principal value before allocating a portion as loan security – this allows your savings to act as collateral without having to liquidate them entirely. Some banks also accept life insurance policies with term plans as collateral for education loans – this option being available from certain banks only.
Immovable property such as houses and flats are another form of collateral; lenders allow up to 10 lakhs as loan security against this asset type. Please be aware that agricultural land, gram panchayat properties, and Cantonment area properties cannot be accepted as collateral for education loans.
Banks typically hire legal and valuation experts to appraise your immovable collateral. They will visit the property, review all relevant documents and approvals from local municipalities, take photographs of it, and then report back to the bank with their estimate of its realizable value – although most education loan lenders only approve up to 80% of this figure as collateral value.
Third-party securities and personal possessions may also serve as collateral for education loans. Third-party securities refer to assets owned by your relatives or friends that can be pledged as security against an education loan; these could include cash, mutual funds, LIC policy premiums, or shares – though banks only consider such items if they have high market values and can quickly be sold as collateral for education loans.
Personal possessions
If you wish to attend a top overseas university, an education loan may be necessary. Lenders often demand collateral security from you in the form of personal belongings as collateral security against this type of loan – although some lenders offer unsecured loans without collateral requirements for students with outstanding academic records and financial standing.
Common assets used as collateral for education loans include real estate and liquid assets such as gold. By adding collateral, lenders reduce risk by being able to take possession of your investment should you fail to repay their loan; however, many people lack enough assets worth this much or a family willing to pledge them as security for such an endeavor.
In the past, collateral often took the form of an expensive item that could easily be replaced, like a car or house; nowadays, however, laptop computers or carbon fiber road bikes are frequently used as collateral due to being more complicated to replace than pieces such as land or cars.
Value Your Collateral in Line With the Loan Amount A bank-approved valuator will visit your property, review all property-related documents and municipal approvals, take photographs of it, and submit a valuation report with his findings. He may also require copies of your mortgage loan agreement and any additional relevant documents as evidence of its value.
To secure an education loan, it is necessary to submit academic transcripts, standardized test scores, university admission letters, and proof of income, address, and identity to lenders within 2-3 days. Once lenders accept your loan application, they will disburse funds directly into your bank account.
Co-signed loans
India’s education costs can be expensive, and students often require financial help in order to afford school. Therefore, the Indian government has made it possible for students to apply for an education loan, though specific requirements must first be fulfilled prior to being approved – including providing collateral security and cosigner guarantees. Lenders require collateral as a hedge against possible nonpayment and could request anything from tangible property such as real estate or liquid investments like fixed deposits as collateral security for loans – this also helps lower interest rates on any loans granted.
Cosigned loans involve signing for your student as their guarantee of repayment, which can be beneficial when they don’t yet have steady employment or earnings. It’s important to remember, though, that cosigned loans are reported on credit reports and can have an adverse impact on debt-to-income ratios. It is wise to discuss cosigning a loan with them first to discuss what role this will have in meeting financial goals in the future.
Banks accept various other forms of collateral when providing education loans, including third-party guarantors with good credit histories and income sources as a safer alternative to property. You should still check each lender’s policies to make sure that they will lend to you before agreeing to make loans on these grounds.
Bank-linked insurance policies make an effective form of collateral for an education loan, with some lenders offering up to 90% of the principal value as loans against such policies; however, specific lenders require term insurance policies as collateral for these loans.
Government bonds and mutual funds may also serve as security for an education loan, with most government banks accepting these assets as security; only some private banks accept them. FDs must also be registered solely in the name of the borrower – no joint accounts will be permitted! Furthermore, banks appoint an evaluator who verifies authenticity and value.