Collateral for Education Loan – Study Abroad expenses in any country generally range from ₹10.00 Lakhs to as high as ₹1.00 crore per year. Education loans to study abroad generally have the ability to cover these expenses. These loans are provided by mortgaging collateral assets (secured loans) or in some cases without staking any collateral (unsecured loans). Secured study abroad loans help students to get higher education loan amount at lower interest rates. Similarly, unsecured loans help students to get faster and easier loans.
Collateral security is the personal asset that students submit with banks and financial institutions to get the education loan for study abroad. Different factors like collateral valuation, collateral eligibility influence the rate of interest and quantum of study abroad loan one can take. Here in this article, we provide you with complete information about how to manage collateral security for education loan to study abroad.
Collateral for Education Loan – Key Factors to Consider
There are many misconceptions regarding education loan collateral security norms in India. Besides, there are many post-implications attached to any education loan for abroad studies without collateral. One of the most common questions that students ask is, how does the collateral security for education loan system works, specifically in the context of study abroad. Here are a few details about this topic.
Collateral for Education Loan – How does it work?
Collateral for Education Loan to Study Abroad act as personal assurance which applicants provide to the bank in return of the loan amount. It is a safe way of expressing the repaying intent and ability to the education loan provider. For any study abroad loan, the bank creates a lien (due) in the applicant’s name as they get the funds for foreign education. In return, the student submits a cautionary asset to the provider equal or more than the sanctioned loan amount as a fail-safe to account for non-repayment of education loan. Thus, the bank is able to establish that the loan will be repaid. Without collateral security for an education loan, the bank justifies the repaying ability from previous financial records of the applicant.
Collateral for Education Loan – Benefits and Limitations
Not many banking institutions in India provide education loan for study abroad without collateral. Students generally go to Non-Banking Financial Corporations (NBFCs) for getting such loans. One of the most common benefits of getting a study abroad loan with collateral is the reduced interest rates. Students can get a higher amount as well for a secured loan as compared to an unsecured education loan in India. Following is the comparative list of pros and cons regarding education loan for abroad studies without collateral and with collateral.
|Collateral for Education Loan|
|With Collateral||Without Collateral|
|Provided by all Banks (Private & Govt.) and NBFCs||Provided only by some NBFCs|
|Average rate of interest between 7% to 13%||Average rate of interest between 13% to 18%|
|All countries accept loans with collateral as proof of funds||Some countries do not accept collateral as proof of funds for award of student visa|
|Average loan amount available up to ₹2.50 crore||Average loan amount available up to ₹60.00 lakhs|
|Requires no EMIs to be paid during education tenure||Requires mandatory basic EMIs to be paid during international education tenure|
|Generally needs an asset or multiple assets more than the sanctioned loan cost||Any student with good credit score and without any external assets can get it|
|Long inspection and loan sanction process: 30-180 days||Low turnaround time: 10-45 days|
|Generally covers academic and related expenses only||Covers all kinds of living and academic expenses in foreign country|
Collateral for Education Loan – Necessity and Comparative Analysis
Baring the common misconceptions, students can secure education loan for abroad studies without collateral from nationalized and private banks too. Banks do not ask for collateral security for education loan as long as the amount is under a certain limit. As the cost of studying abroad for an Indian student is generally high, students have to seek a higher education loan amount. But for studies in countries like Germany, Norway and Mexico, students need low loan amount. Thus, in conclusion, it can be said that collaterals for education loan are not at all necessary to study abroad. Following is the common table used by banks to calculate collateral required for education loan.
- No collateral required for loans up to ₹4,50,000 (4.50 lakhs)
- Only third-party guarantee or bank security required for loans up to ₹7,50,000 (7.50 lakhs)
- Collaterals required only for loans above ₹7,50,000 (7.50 lakhs)
How does Student Loan Collateral help applicants?
Collateral security for education loan does not directly help students to study overseas. The education loan schemes which accept collaterals have embedded schemes which help students to enjoy more financial freedom. Students loans with collateral also help students in securing international admissions in USA, Canada, Australia, Singapore, Germany, Ireland and other countries. Find below a brief detail of how collateral for education loan helps students with their studies abroad.
Acceptance at International Institutions for Academic Fees
Study abroad admission criteria across various international universities vary in terms of financial acceptance of education loans. Students should also consider that some international universities in USA, UK, Germany, Canada, and Australia have strict norms for education loan based fee payments. Some of them have their own accepted list of banks from which student can take education loan in India to pay academic fees. Most of such banks are nationalised banks and thus, non-collateral loans fail to pass this criterion.
Proof of Funds to Study Abroad
Every foreign country has its student visa norms based on the financial background of an applicant.
- Student visa for Canada requires students to submit CAD 10,000 in Canadian Investment Program called GIC (Guaranteed Investment Certificate).
- To study in Australia, one needs to show funds in a bank account equal to AUD 20,290.
- To study in Germany, students need to submit EUR 8,640 in a German blocked account.
Only some Indian banks are accepted by national immigration departments to fund these international accounts. Germany accepts only Indian nationalised banks and some private banks, while the UK does not allow NBFC loans as proof of funds.
Collateral for education loan in such cases helps in getting a student visa. As nationalised banks and private banks only provide study abroad loans with collateral, students get the visa application benefits as a bonus with these institutions. Students should notice that it’s not compulsory to take loans with collateral. But taking loans without collateral might reduce the chances of students getting an international visa.
Benefits of reduced interest rates and higher loan amount
There’s a reason why collateral based study abroad loans are called ‘Secure Loans’. They provide financial security to both sides (banks and applicants). But at the same time, they also secure students from the financial burden that any unsecured education loan in India carries. Some key factors regarding any education loan for abroad studies without collateral or with collateral are mentioned below.
- Maximum Education Loan without collateral
- National and Private Banks: ₹7,50,000 (7.50 lakhs)
- NBFC institutions: ₹36,00,000 (36 lakhs)
- Minimum Interest Rate for Education Loan without collateral
- National and Private Banks: 10.50%
- NBFC institutions: ₹12.25%
- Interest rate changes as per RBI and IBA reductions
- National and Private Banks: Automatically Applicable
- NBFC institutions: No MCLR Rates, no rate revisions
- Default- Missed EMI interest rate
- National and Private Banks: Simple Interest Annual
- NBFC institutions: Compounded Annually
ALSO READ: EDUCATION LOAN SUBSIDY: COMPLETE GUIDE.
Subsidy Benefits of Collateral for Education Loan
Indian Government and Ministry of Human Resource Department (MHRD) had introduced Central Sector Interest Subsidy Schemes for student loans in 2009. Indian students who used to pay their education loan EMIs regularly could get interest rate subsidies from the government under this scheme. Collateral for Education Loans relates to these schemes in a different way.
As these subsidies can only be claimed for student loans taken from Indian Banks (Pvt. And Govt.), students cannot avail their benefits for NBFC loans. NBFCs can provide a large amount of non collateral education loan for abroad in less time. But no EMIs paid to an NBFC can be subsidised under Govt. CSIS Scheme. (Ref: CSIS 2009 rev: 01-04-2018)
NBFCs non collateral education loan for abroad also doesn’t feature in the IBA Scheduled Banks. Thus, students who take education loans from NBFCs are not able to avail the government subsidies.
Collateral for Loans – Types of Collateral Security for Education Loans
The value of any collateral security for education loan and its effect on the interest rate depends on its category. Due to increasing default in repayments by many loan applicants, banks have stopped accepting risky or non-performing collaterals for education loan. The common question from any loan applicant in India is ‘What can I use as a Collateral for Education Loan?’ Here is a detailed description of what are the types of collateral security of student loans in India and their respective valuation methods.
|Collaterals Required for Education Loan in India (Study Abroad)|
|Collateral Category||Collateral Particulars||Collateral Valuation (% of current value)||Documentation required|
|Immovable Asset||Non-Agricultural Land||70% to 80%||
|Commercial Plot or Property||75% to 85%||
|Residential Land or Plot||60% to 90%||
|Immovable Liquid Asset||Fixed Deposits/ Recurring Deposits||90% to 100%||
|Life Insurance Policies||90% to 100%||
|Liquid Equity Investments (Equity Shares, Debentures, Mutual Funds, etc.)||80% to 95%||
|Bonds (Bearer Bonds, Gold Bonds, etc.)||80% to 110%||
|Third Party Guarantee||Bank Guarantee (SBLC – Standby Letter of Credit or others)||100%||
|Third Person Guarantee (Secondary Relatives – Spouse or Parents-in-law)||90% to 100%||
Education Loan Collateral Security and Repayment
Collateral based loans help students in getting better education loans and more so. Students who use collateral for education loan are able to get flexible repayment options as well. Such students can also avail interest subsidies on continuous payments during their course tenure. SBI Ed-Vantage Study Abroad Education Loan allows students to avail a 1.00% interest rate reduction on regular EMI payments for 12 months.
Not only Indian Banks but ‘International Private Student Loan Providers’ also provide such subsidies only to students who provide collateral security for student loans. Some banks like Bank of India and Regional Rural Banks provide free prepayment services only to students who take collateral based education loan for study abroad. An education loan for abroad studies without collateral cannot avail such prepayment or interest subsidy features.
Subsidy Schemes and Scholarships for Collateral Based Education Loans
These benefits combined with the Padho Pardesh Education Loan for Study Abroad Subsidy Scheme, Dr. Ambedkar CSIS on Education Loan for Overseas Studies for OBC and EBC; and Interest Subsidy on Education Loan for Overseas Studies for Minority help students to cover their expenses in a convenient manner.
Non collateral education loan for abroad help students who genuinely do not have any asset to submit. Choosing such a loan despite having an available collateral asset is a financial risk. Submitting a Collateral for Education Loan also helps in other ways to fund your studies abroad. Students who take Secured Education Loans are allowed to adjust the margin payment of loan disbursement with their International Scholarships. To search for education loans to study abroad, visit Buddy4Study Edu Loans where you can get well-negotiated loan schemes. Good Luck and Happy Learning!