Education Loan With Collateral – Types, Interest Rates & Process

What is an Education Loan With Collateral?

An education loan that requires applicants to pledge a property as collateral is called an education loan with collateral or a secured education loan. This collateral acts as security for the loan amount. Involving collateral security for education loans reduces the risk for the banks. 

Why opt for Secured Education Loans?

A lot of students think collateral education loans are risky, as these loans involve pledging property as security for the loan. And the process of obtaining an education loan with collateral from Government banks on your own can take weeks, if not months. However, secured education loans come with huge benefits, making them the prime choice for many students. Here are several benefits of a student loan with collateral:

Key Benefits of a Student Loan with Collateral

• Banks offer higher loan amounts for an education loan with collateral.
• Involving collateral security for education loans increases the chances of loan approval.
• Minimal processing fee of just 10K plus GST.
• These loans cover a wide range of courses and countries.
• Secured education loans from public banks are flexible with co-applicant requirements.
• An education loan with collateral interest rate is relatively low compared to unsecured education loans.
• A student loan with collateral from most public banks offers an interest-free moratorium period.
• There is no pre-payment for secured education loans from public banks.

What is collateral in Education Loans?

One of the most common questions that many students have about secured education loans is what is collateral in education loans? Collateral refers to assets or property that a borrower offers as security to a lender in exchange for a loan or credit. The presence of collateral provides the lender with a form of guarantee, reducing the risk associated with lending money. If the borrower fails to repay the loan before the term ends, the lender has the right to seize and sell the collateral to recover the outstanding debt amount.

Types of Collateral Security for Education Loans

There are two types of collateral security for education loans that banks accept: immovable property and liquid security.

1. Immovable Property

An immovable property refers to assets that cannot be moved or relocated, like land, a building, or a flat. Here are a few different kinds of immovable properties that banks accept.

A) Residential Property:

These are the most commonly used types of collateral in the case of an education loan. These properties include:

• Houses 
• Apartments 
• Villas 

B) Commercial Properties:

Commercial properties are the properties used for business purposes. Not all banks accept commercial property as collateral, and the ones that do accept might require a higher collateral margin. 

These properties can include: 

• Shops 
• Offices

Note: Not all banks accept commercial properties. For example, IDFC and ICICI Bank do not accept commercial properties for education loans.

C) Non-Agricultural Land:

Non-agricultural land refers to the land where farming is not performed. Non-agricultural land, such as plots for building houses or commercial complexes, can be pledged as collateral. 

2. Liquid Securities

Liquid security is a financial asset that can be easily changed into cash without any loss to its value. These are generally preferred by banks because of the ease of valuation of the property. Types of liquid security include:

A) Fixed Deposits (FDs):

A fixed deposit is a financial instrument provided by banks or non-banking financial institutions (NBFCs) where an individual deposits money for a fixed period and earns interest.   

B) Life Insurance Policies (LICs):

A life insurance policy can be pledged as collateral. Most life insurance policy provided by the Life Insurance Corporation of India (LIC) is easily accepted, especially those issued by Life Insurance Corporation of India (LIC). 

C) Government Bonds:
Government bonds are debt securities issued by the government to raise funds. These bonds are considered safe investments, backed by the government, and are thus highly acceptable as collateral.

Education Loan Collateral Requirements

The collateral requirements for a student loan with collateral vary depending on the type of collateral. The following are the education loan collateral requirements of both immovable properties and liquid securities:

Education Loan Collateral Requirements of Immovable Properties

The following are the various collateral requirements of the immovable properties for a student loan with collateral:

• The property should be free of any legal disputes and should be owned by the student or the co-applicant.
• All the documents for the property must be available. 
• Banks also only accept the property if clear boundaries are defined from the neighbouring properties
• In case of non-agricultural lands, The land should be legally registered, and all the documents regarding it must be available.
• In some banks, such as the Union Bank, agricultural land can be accepted as collateral. 

Note: You can contact our financial officers by requesting a callback to know if your agricultural land can be pledged as collateral or not.

Education Loan Collateral Requirements of Liquid Securities

The education loan collateral requirements of liquid securities are as follows:

• For fixed deposits, the FD must be owned by the borrower or co-applicant and banks will hold the FD until the loan is repaid.
• In case of Insurance policies, only policies with a significant surrender value are accepted. Term life insurance policies that do not have a cash surrender value are usually not accepted.
• To get a secured education loan with government bonds, the bonds must be held in the borrower s or co-applicant s name and free from any encumbrances.

What is Education Loan Collateral Margin?

One important thing to note is banks do not approve 100% value of the property. They put a margin on the property value called “Collateral Margin”. Banks do so to make sure they can lend as much money as they can recover, excluding the losses that might incur on the property over the years due to inflation or depreciation.

Collateral margin is different for different banks. Below is a table containing values of loan margins applied by various banks.

Now that we have understood the types of education loan collaterals and collateral margin, let us look at how the collateral properties are valued.

How is an Education Loan Collateral Value Calculated

Collaterals are valued early in the loan process to decide how much creditworthiness the property holds and the maximum loan amount you can get against that property. 

Valuation of immovable collaterals:

The valuation of immovable property is done by bank-approved valuators (engineers). Valuators will visit your property, check all the property-related documents and municipality approvals, click pictures of your property, and submit a brief report. 

In the report, you will find three values:

• Fair Market Value
• Realizable Value
• Distressed Value

When calculating loan amounts, most banks use realizable value.

For example, after valuation, if your collateral value comes to 50 lakhs and the collateral margin is set at 20%, then 80% of the value will be considered, which is 40 lakhs as a loan amount. 

Valuation of liquid collateral:

 Liquid securities can be converted to cash instantly, thus eliminating the legal and valuation process, resulting in faster loan processing time. The following table explains which value of the liquid securities is considered as collateral value for secured education loans:

Education Loan with Collateral Interest Rates and Loan Limits

• Collateral education loans are considered to be the best option to finance studies abroad and in India. Because you can get up to ?3 crores as collateral education loan.
• The amount depends on the value of the pledged collateral and can be used to cover your total loan requirement for tuition fees and miscellaneous expenses.
• An education loan with collateral interest rate in public banks is 9% to 11%, and between 10% to 14% with private lenders.

Now that you have reached this far and know the loan amounts and rates of interest, you might want to take a collateralized education loan. For that, you would need to provide the bank with property documents. Let us take a look at what they are.

Property Documents Required for an Education Loan with Collateral

Getting a secured education loan can be easy if you have the required education loan collateral documents. You will save a lot of your valuable time by arranging these documents in advance if you know the required collateral documents beforehand. We have listed all the needed documents in the list below:

• Property Title Deed
• Registered Sale Agreement/ Gift Deed/ Will
• Original registration receipt for the above agreement
• Allotment letter by the Municipal Corporation
• Copy of municipality-approved building plan or plot layout
• The latest property tax bill and electricity bill bear the same address
• A 30-year link document or a previous chain of sale deed establishing title or EC is required.

Documents Required If the Property is a Gift Deed:

• The gift deed and Will should be registered.
• The property should be registered in the new owner s name.
• No Objection Certificate(NOC) should be obtained from the owner s siblings or relatives.
• A legal heir certificate and a family tree certificate should be produced.
• The death certificate of the person who wrote the will should be submitted.
• Two legal reports are needed in the case of a gift deed.

Important things to keep in mind about education loan collateral documents:

• Property should be segregated from neighboring properties. Must have clear boundaries.
• If a huge land is cut into multiple plots, then the motherland registration deed is required.
• If the loan amount required is more than 1 crore rupees and the property is also worth more than 1 crore rupees, then two legal and two valuation reports are required.
• Properties registered recently will not be valued by banks, instead, banks will go with the value shown at the time of registration.

So, these are just collateral-related documents required to present when pledging collateral for an education loan. Other documents, such as KYC documents, academic qualifications, and co-applicant financial documents, will also be required, which are covered in-depth in this article- Required documents for Education loan.

Process of Getting an Education Loan with Collateral

You can start your education loan process as soon as you receive your admission letter from the university. 

1. You need to fill out the loan application form provided by the banks. (With Students Channel, you would only have to fill out one common application form that can be forwarded to all the banks).
2. Next, you would have to submit all the required documents at the bank s branch. (We will provide you with the checklist of documents for different banks).
3. The bank will then appoint a lawyer and a valuator for your collateral (for only immovable properties), for which you have to pay some 7K to 8K to the banks as a fee to the lawyer and the valuator. They will submit the legal and valuation report of the pledged collateral to the bank.
4. After receiving the legal and valuation report, the bank will send these reports along with other submitted documents to the central loan processing cell that handles the education loan process.
5. The processing officer will look into your loan application and verify the application, and once they have verified the application, they will sanction the loan.
6. Once your loan gets sanctioned, you will get a sanction letter after paying the processing fee, which stays valid for about 6 months.
7. At last, you and your co-applicants will have to submit all property originals to either CPC or the branch for mortgage creation. It involves stamp papers, affidavits, etc, which will be charged at approx 0.5% of the loan amount, then the account is ready for the loan amount to be disbursed.

Can Banks Provide a Secured Education Loan on a Property under another Loan?

There might be cases where the student has only one property to pledge, and that property is under another loan. So, in such cases, will banks give you an education loan on the same property?

Yes, you can pledge collateral that is already under a loan as security for an education loan. For this, banks consider certain factors before finally approving the education loan-

• The market value of the collateral that is currently under a home loan.
• The pending home loan amount is to be paid.
• However, the collateral under a personal loan cannot be pledged for an education loan. 

To know more in detail about this, refer to this article- Education Loan on a Home Loan Property- Know Everything!

Conclusion

In conclusion, public banks are known to give the best deal in the market for collateral loans. However, they take a longer time to process your loan if you go on your own. But when you go through Students Channel, we expedite your loan process by coordinating directly with the loan processing department. Even if you do not have any collateral to pledge, or for some reason your collateral security is not accepted by the banks, Students Channel can help you get a non-collateral education loan as well. 

We hope this article provides you with all the knowledge you need about education loans with collateral. If you wish to get a collateralized education loan for your higher studies, get expert help from loan initiation to post-sanction. Request a call back now and speak to our financial officers.