An education loan with collateral security is a type of loan where the borrower pledges an asset, such as property or fixed deposits, as a guarantee for repayment. Pledging collateral reduces the risk for the provider and often helps you get better interest rates or approval chances.
In this article, we’ll walk you through what collateral security means, the types of assets you can pledge, and the key factors to keep in mind when applying.
What is Collateral Security for an Education Loan?
Collateral security for an education loan refers to an asset that the borrower puts up against the lender as security for the repayment of the loan. Upon non-repayment, the lender is entitled to sell the collateral to retrieve the amount lent.
Collateral for education loans generally falls under two categories: tangible and intangible assets.
Types of Collateral Accepted for Education Loans
Lenders may accept different types of collateral based on their policies and valuation criteria. Here's how the two categories differ:
1. Tangible CollateralThese are physical or real assets, typically including:
- Residential or commercial property
- Non-agricultural land
- Fixed deposit receipts
- Government bonds or securities
These refer to financial instruments, such as:
- Life insurance policies with a surrender value
- Fixed deposits held with the lending institution
The requirement and acceptance of specific collateral types can vary by lender. It’s advisable to confirm the acceptable forms of collateral and their valuation norms before applying for the loan.
Features of Education Loans with Collateral Security
Education loans backed by collateral can provide
- Relaxed Repayment Conditions: Repayment terms up to 15 years can be offered, assisting in keeping financial obligations at bay after graduation.
Loan providers design education loans to support finances so that students can concentrate on their education.
How to Apply for an Education Loan with Collateral Security
- Step 1: Check Eligibility: Review the eligibility criteria for admission status, academic record, and financial history.
- Step 2: Collect the Necessary Documents: Critical documents would comprise:
- University admission letter
- KYC documents (ID proof, address proof, etc.)
- Collateral property documents (if required)
- Co-borrower income verification documents
- Step 3: File the Loan Application: Complete the loan application online or offline, supporting it with the documents required for verification.
- Step 4: Collateral Evaluation: The loan providers evaluate the market value and legal status of the collateral before loan approval.
- Step 5: Loan Approval and Disbursement: After verification, the loan may be approved and disbursed as per the terms.
Key Considerations Before Taking a Collateral-Based Loan
Borrowers should keep the following in mind before going ahead:
- Repayment Capability: Make sure that repayment terms fit your future earning capacity.
- Understand Loan Terms: Go through details like interest rates, processing charges, and repayment terms before taking the loan.
- Evaluate Risk Factors: Failure to repay the loan can lead to the loss of the collateral pledged.
- Repayment Terms: Flexible repayment terms can permit parents and students to opt for a tenure consistent with their planning.
Conclusion
Collateral-based education loans are a way of funding available for those aspiring to pursue higher education. Knowledge regarding collateral requirements, provisions, and the associated risk enables students as well as families to make wise decisions. If you’re a student thinking of getting an overseas education loan, Credila offers student loans with flexible repayment options. Opting for well-calculated repayments and favourable policies enables the students to choose suitable loan options that support their professional and study aspirations.
Disclaimer
As of March 31, 2024. T&C apply.
Credila Financial Services Limited (Formerly known as HDFC Credila Financial Services Limited)
The education loan facility provided by Credila Financial Services Limited ('The Company') will be at the sole discretion of the Company and within the Company's prescribed credit and underwriting norms/guidelines prevailing at the time of processing and disbursing the education loan. The Company maintains the right to change the interest rate at any time and at its sole discretion, without prior notice.
