Education loans help many people get into top colleges and land good jobs. In his 2013 speech, Barack Obama, the former president of the United States, told the crowd that he didn’t pay off his student loans before he ran for the U.S. Senate. He was only able to pay off his loans in his 40s completely. However, if it weren’t for his education, he would not have been able to become the president of the world’s oldest democracy.
Like Barack Obama, many people take education loans to achieve their aspirations. Hence, it becomes crucial to understand the essence of education loans. When you take an education loan without collateral, it is called an unsecured loan. And, an education loan with collateral is known as a secured loan. Here, we are going to look at different aspects of a secured education loan and understand its benefits, eligibility, and everything important from a borrower’s perspective.
Table of contents
Meaning of Secured Education Loans
Secured education loans are loans that require a borrower to provide collateral or security against which the loan is provided. Keeping collateral gives an assurance to the lender that the borrower will pay off the loan on time. And, in case the borrower fails to repay, then this collateral is forfeited by the lender.
Salient Features of Secured Education Loans
Secured education loans are also known as ‘collateral education loans’. These loans have become very common due to the advantages that come with them. But first, let’s look at their various features:
| Features | Meaning |
| Low-Interest Rates | Secured education loans come with a low interest rate as the borrower provides collateral for the loan. |
| Types of Collateral | Tangible assets- Physical assets that can not be moved from one place to another like a house, flat, non-agricultural land, apartment, shop, etc. Intangible assets- non-physical assets like fixed deposits, life insurance policies, stocks, mutual funds, government bonds, etc. |
| Requirement of Collateral | Below INR 4 Lakhs- Collateral is not required for loans up to INR 4 Lakhs. Between INR 4 – 7.5 Lakhs- If the lender thinks that the income/net worth of the joint borrower is not satisfactory then a third-party guarantee is needed for loans between INR 4 Lakhs to INR 7.5 Lakhs. Above INR 7.5 Lakhs- Collateral is required for loans exceeding INR 7.5 Lakhs. The value of the collateral can be less than, equal to, or greater than the loan amount. |
| Lender | These loans can be taken both from public banks and private lenders. The interest rate charged by public banks starts at 7.5% and it starts from 9.5% for private lenders. |
| Loan amount | Depends on the value of the pledged collateral. Also depends on your total loan requirement. Some banks like HDFC Bank have no upper limit with collateral. |
Benefits of Secured Education Loans
A lot of people choose secured education loans due to the benefits that come with it like:
- Higher loan amount- If your loan requirement is high then choosing a secured loan is a good option as these generally provide higher loan amounts.
- Longer repayment period- These loans come with a longer repayment period that can go up to 10-15 years.
- Lower interest rates- Secured education loans entail a lower interest rate since collateral backs them.
To know the difference between a secured education loan and an unsecured education loan, read the blog:
Secured Vs. Unsecured Education Loan: What’s the Difference?
Eligibility to Get a Secured Education Loan
Having understood the meaning and importance of a secured education loan, let’s look at the eligibility criteria:
- The student must be a resident of India.
- The student must possess a letter of admission from a recognised university in India or abroad.
- While applying for a loan, the age of the student must be between 18 to 35 years.
- The student must possess a good academic record as the lender will look at your profile before granting you the loan. And in case your loan requirement is high then the value of the collateral that you need to pledge will be determined based on your academic history.
If you want to know more about collateral then you must read this blog:
Types of Property Accepted as Collateral Security for Education Loan
Documents Required to Get a Secured Education Loan
The checklist of documents differs from bank to bank and you must check with your lender what documents you may have to provide. Here are the basic documents that most lenders ask for:
Documents required from applicant (student)-
- Proof of identity
- Proof of residence
- Passport
- 10th and 12th class mark sheet
- Offer letter of the institution
- Passport size photographs
- Bank statement for the past year (in case of any previous loans)
- Collateral-related documents of the pledged property
Documents required for co-applicant/guarantor
- Proof of identity
- Proof of residence
- Passport size photographs
- Salary slips, Form 16, IT Returns (in case of salaried co-applicant)
- Bank account statement of last 6 months to 1 year.
- Collateral documents (if the property pledged is of co-applicant/guarantor)
Interest Rates of Secured Education Loans
The table below contains the interest rates charged by different lenders:
| Lender | Interest rate | Maximum Loan Amount |
| State Bank of India (SBI) | 8.15% onwards | 70% of collateral or 90% of the total requirement, whichever is less |
| ICICI Bank | 9.5% onwards | Upto INR 80 Lakhs |
| Axis Bank | 9.9% onwards | Upto INR 80 Lakhs |
| Union Bank of India | 10.5% onwards | Upto INR 1.5 Crs |
| Bank of Baroda | 8.5% onwards | Upto INR 1 Crs |
| HDFC Bank | 10.5% onwards | No upper limit with collateral |
Note: Interest rates may change over time and may also vary as per the borrower’s profile. Please check about the prevailing interest rates with your lender while applying for the loan.
FAQs
Loans exceeding INR 7.5 Lakhs require collateral that can either be a tangible or an intangible asset.
Secured education loans are loans with collateral. A borrower needs to pledge collateral to obtain secured loans.
Yes, you can get collateral-free education loans (unsecured loans). Different banks like SBI Bank, HDFC Bank, etc. provide unsecured loans to borrowers.
This blog was all about secured education loans, their benefits, and various features. To know more about secured and unsecured loans, the best bank accounts for students, forex and banking experience for global students, or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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