What is Collateral Security for Educational Loan?

Studying abroad in top international universities is on most students' bucket lists. However, the budget is the deciding factor. Students can borrow an education loan to finance their dream of getting an overseas education. Banks require collateral security, such as property or assets, to cover the risk associated with lending large sums of money.

Banks and NBFCs offer Education loans on collateral security. It means you need to pledge any asset which is equally valuable to the amount of the loan. This asset can be a property, fixed deposit, or other valuable possession. Such kinds of student loans are known as secured education loans. If the primary collateral security does not cover the total loan amount, banks may ask you for additional security.

Students avoid taking education loans that require collateral security due to concerns about the hidden terms and conditions of banks. However, with thorough research, a student loan from any bank is a good option for financing their studies. In this blog, we will help you to understand every piece of information regarding collateral security for educational loans. 

Also, Read

Note: Do not let finances become a hurdle in your dream of studying abroad. Students who wish to study abroad may get in touch with the leading education loan providers through Shiksha Study Abroad.

What is an Education Loan?

A kind of financial aid, an education loan, is required by students who wish to study domestically or abroad and require funding of their educational costs. Expenses covered include tuition fees, cost of living, books, and other related expenditures. These are a form of student loans which can be obtained from banks and government organisations.

As a student, you would be the borrower who wishes to obtain some financial help for pursuing your education abroad. Apart from you, your parents or guardians can also apply for a loan. Various types of education loans exist, such as private loans and federal loans. An interest rate applies to the education loan, which acts as the cost of borrowing money.

Related Reads:

• Education Loan Interest Rates
• How to Repay Student Loans Faster?

Why is Collateral Required for Education Loans?

When you apply for an education loan in India, banks may ask for collateral security, against the loan. This is more common in higher loan amounts. Since not all students don't get jobs immediately after graduating, the banks have no guarantee of their future income and profile. That is why collateral is required.  Here’s how to understand it:

What Counts as Collateral?

• Immovable Assets: House, flat, apartment, plot (non-agricultural), fixed property owned by you or close family.
• Liquid Assets: Fixed deposits, government bonds, LIC policies (with surrender value).
• Third-Party Collateral: Property or assets owned by a relative who agrees to pledge on your behalf.

Note that, agricultural land, property outside India, Shares or mutual funds (in many banks) are not accepted as collateral.

Property Papers Needed for Education Loans

• Registered Sale Agreement
• Allotment Letter by Municipal Corporation
• Property Title Deed
• Registration Receipt
• The municipality approved the building plan's copy
• Present the property tax bill as well as the electricity bill, sharing the common address
• A conversion document will be needed if the agricultural land has turned into residential land

Collateral vs. Non-Collateral (Unsecured) Loans