Types of Collateral for Abroad Education Loan – Complete Guide

What is Collateral in Education Loan

Collateral is a security that a borrower pledges as a security for the loan. It works as a security for the lender in case the borrower defaults in repayment of the loan amount. The value of the collateral typically covers the loan amount.

Now since the lender has assured repayment of the loan with the assigned security, the borrower may get favourable terms and conditions like lower interest rates, higher loan amounts, longer repayment tenure, etc.

Generally, banks and other financial institutions offer collateral-free education loans up to INR 7.5 Lakhs. However, loan amounts more than this specified limit require some kind of collateral in the form of a pledged security.

Types of Collateral Security for Education Loan

There are multiple types of collateral that borrowers can pledge against an abroad education loan. These include:

• Immovable Assets: This type of collateral is the most preferred and common type of collateral. It includes residential property, commercial property, a plot of land, etc. The tangible asset that is being pledged as collateral should have clear boundaries and be free from any legal disputes.
• Intangible Assets: Borrowers can also pledge intangible assets as collateral security. These include fixed deposits, life insurance policies, government bonds etc. One thing to note here is that fixed deposits and life insurance policies should be in force and registered in the name of the borrower and further should be assigned to the lender. 
• Third-Party Secured Education Loans: In some cases, lenders may also accept collateral that consists of immovable property of a third party, known as a ‘third-party secured abroad education loan.

Every type of collateral has its own set of evaluation criteria and set of requirements. It is advisable to always check with the lender about acceptable forms and specific conditions.

What If The Collateral Is Not Located In The Same City?

If the property being pledged meets the eligibility criteria to qualify for an education loan collateral, it can be used by the lender regardless of the location. However, it can introduce additional steps and considerations in the loan approval process:

• Coordination with local branches or third-party agencies to assess the property’s value and legal status
• Requirement of additional documentation that the borrower may need
• Some additional costs include travel expenses for bank officials or fees for local evaluators or legal experts.

These instances are known as multi-city cases and generally, most lenders approve them.

Also Read : International Student Loans Without a Cosigner in the U.S

Documents Required For Education Loan Collateral

Every lender may ask for a different set of documents for different types of collateral for an abroad education loan. Here’s a list of the most common documents required:

For Immovable Assets:

• Title deed (original document proving ownership)
• Sale deed or purchase agreement
• Original registration receipt 
• Encumbrance Certificate (EC)
• Approved building plan
• Recent property tax receipts
• Recent property electricity bills and tax receipts having the same address
• No-objection certificate (NOC) from the housing society (if applicable)
• Allotment letter by an authorized govt/municipal corporation 
• Possession certificate

For Intangible Assets:

• FD receipt issued by the bank
• Letter of lien marking the FD to the lender
• Original life insurance policy document
• Surrender value certificate from the insurance company
• Assignment deed in favor of the lender
• Original government bond certificates
• Transfer form or lien marking the government bonds in favour of the bank

These documents ensure that the lender can accurately assess the value and legal standing of the collateral, which is crucial for securing the loan. Borrowers should prepare these documents in advance to streamline the application process.

Also Read : Education Loans with Collateral to Study Abroad

Benefits of Collateral Education Loan

Collateral Education loans offer multiple benefits that make them an attractive option for borrowers. Here are some of the key benefits:

• Lower Interest Rates:  As compared to unsecured loans, collateral loans come with lower interest rates. 
• Higher Loan Amounts: With collateral, borrowers can access higher loan amounts. It is beneficial for covering substantial costs of studying abroad including tuition fees, accommodation, travel and living expenses.
• Flexible Repayment Terms: Lenders are more likely to offer flexible repayment terms for collateral loans. This can include longer repayment periods and customized repayment plans, easing the financial burden on the borrower.
• Lower Processing Fees: Collateral loans might come with lower processing fees and other associated charges compared to unsecured loans. The reduced risk to the lender can translate into cost savings for the borrower.
• Better Loan Approval Chances: Collateral significantly enhances the chances of loan approval. Lenders are more confident in approving loans secured with collateral, as it mitigates the risk of non-repayment.

Why Should You Apply Early For A Loan With Collateral?

Applying early for an abroad education loan with collateral is a strategic decision that can offer several significant advantages. Here are the key reasons why early application is beneficial:

• Starting early provides ample time to gather, verify, and submit the necessary documents without rushing, reducing the risk of errors or omissions.
• Early application ensures there is sufficient time for the lender to conduct thorough valuation and legal checks, avoiding delays in loan approval.
• Lenders might offer better interest rates and repayment terms to early applicants, especially if you lock in rates before any potential market changes.
• Early loan approval allows for better financial planning. Knowing the exact loan amount and terms helps in budgeting for tuition, accommodation, travel, and other expenses, ensuring you are financially prepared for your studies.
• Last-minute applications can lead to rushed decisions, missed deadlines, and overlooked details. Early application helps avoid these pitfalls, ensuring a more organized and efficient loan approval process.

Also Read : Study in the UK : Guide for International Students

How can HiWiPay be of Assistance?

Thinking of getting an education loan for studying abroad? HiWiPay is here to assist you with the process. Here’s what HiWiPay offers:

• Streamlines Process
• Match you with the best-suited provider
• Saves you time and money
• Relevant lenders interested in your profile will reach out to you directly with personalised offers.

Conclusion

Collateral education loans for studying abroad are a good option as it is beneficial for both lenders and borrowers. It mitigates the lender’s risk as they have something to fall back on in case the borrower defaults in repayment of the loan. On the other hand, the borrower enjoys multiple benefits like lower interest rates, easy approval, flexible repayment terms, etc. However, it is advisable to apply for education loans early as it comes with additional benefits and borrowers can avoid last-minute hassles.

FAQs of Collateral for Education Loan

References:

Non-collateral Education Loans for Abroad Studies

https://www.axisbank.com/progress-with-us-articles/how-to-get-education-loan-for-abroad-studies-without-collateral# Accessed 17th June 2024