Demystifying Foreign Education Loans: Types Of Collateral Accepted And Other Requirements

Pursuing higher education abroad is a dream for many students in India. However, the cost associated with studying overseas can be a significant barrier. Education loans have become a popular financial solution to bridge this gap.
 
Obtaining an education loan for studying overseas in India is an accessible avenue for aspiring students. Collateral requirements play a significant role in the loan application process, as they provide security to lenders. Property, fixed deposits, and third-party guarantors are among the common types of collaterals accepted.
 
Collateral Requirements For Education Loans:

When applying for an education loan in India, lenders typically require collateral as security against the borrowed amount. Collateral serves as a guarantee for the repayment of the loan and mitigates the risk for the lending institution. The type and value of collateral can vary based on multiple factors, including the loan amount, course duration, and the lender's policies.
 
Types Of Collaterals Accepted:

A. Property: Property is one of the most common forms of collateral accepted for education loans. This includes residential, commercial, or agricultural properties. The property's value should cover the loan amount and meet the lender's predetermined loan-to-value ratio.
 
B. Fixed Deposits: Some lenders accept fixed deposits (FDs) as collateral. The FD amount pledged should typically cover a certain percentage of the loan amount. This option allows students to utilize their savings without liquidating them entirely.
 
C. Third-Party Guarantor: In some instances, lenders may consider accepting a third-party guarantor as an alternative to collateral. The guarantor should have a good credit history, a stable income source, and be willing to take responsibility for the loan repayment if the borrower fails to do so.
 
D. Mutual Funds: Certain lenders may accept mutual funds as collateral for education loans. The value of the mutual funds should meet the lender's specified requirements. However, it's important to note that not all lenders may accept mutual funds as collateral, and the acceptance criteria may vary.
 
E. LIC Policies: Some lenders can also consider life Insurance Corporation (LIC) policies as collateral. The surrender value or loan against the policy can be used as security for an education loan. However, checking with the lender whether it accepts LIC policies as collateral is crucial.
 
It’s important to note that accepting mutual funds and LIC policies as collaterals may depend on the lender's specific policies. Borrowers should carefully review the terms and conditions and consult with the lender to understand the eligibility criteria and process for pledging these assets as collateral for an education loan.
 
Please remember to consult with your financial advisor or the lender directly to determine the feasibility and suitability of using mutual funds or LIC policies as collateral for your education loan.
 
Loan Amount And Collateral Value:

The loan amount sanctioned by the lender depends on various factors, including the course's tuition fees, living expenses, and other related costs. The lender assesses the collateral's value to determine the maximum loan amount available. It's important to note that lenders generally provide a loan-to-value ratio, which means they may offer a loan amount that is a certain percentage (e.g., 70-80 per cent) of the collateral's assessed value. Therefore, having collateral with a higher value can potentially increase the loan amount eligibility.
 
Aspiring students should carefully evaluate the collateral requirements of different lenders and choose an option that aligns with their financial situation. It's crucial to consider collateral value, loan amount eligibility, interest rates, repayment terms, and any additional charges or fees.
 
Remember to thoroughly research and compare different education loan options to make an informed decision. Education loans can be a valuable tool to turn your dream of studying abroad into a reality, and understanding the collateral requirements will help you confidently navigate the borrowing process.