Most young Indians hope to complete advanced degrees and boost their careers. Many Indians choose to complete their degrees abroad and then settle there or leverage an international degree for better job opportunities. An education loan provides these individuals with the funds required to complete their higher education degrees without worrying about their finances. Before you take a loan, the education financing partner will evaluate certain factors, including your academic records, your family\'s financial background, the credibility of your course and institution, and the loan amount required. This information will help decide whether the loan will be secured or unsecured.
What Is a Secured Education Loan?
Secured loans require you to provide security or collateral against your loan. Your education financing partner will often ask for collateral when dealing with high loan amounts. It is advisable to take a collateral loan for a better student loan interest rate.
Types of Collateral Accepted for Secured Education Loans
There are three types of collateral you can offer for an education loan.
Immovable Assets
Immovable assets refer to any real estate you could offer as collateral for your loan. Flats, houses and even land are considered immovable assets. There are two types of immovable assets that financial institutions do not accept as collateral – agricultural land or land under the Gram Panchayat’s jurisdiction. If you have non-agricultural land with clear boundaries, you can use it as collateral for your student loan.
Intangible Assets
Liquid securities like fixed deposits, life insurance policies, government bonds and mutual funds all fall under the bracket of intangible assets. When you provide these assets as collateral for a loan, the financial institution retains ownership of it. However, interest earned, such as interest on your fixed deposit or returns on your Unit-Linked Insurance Plans, will still come to you or the policyholder.
Third-Party Security
Sometimes, you may not have the collateral required to get a secured student loan. Many financial institutions also accept third-party security. A third-party individual, like a relative or friend, could provide an immovable asset as collateral for your student loan.
Paperwork Required for Secured Education Loans
When you apply for a secured loan, you must provide the financial institution with some paperwork for the collateral. Typically, people offer immovable assets as collateral. Here\'s a look at the paperwork associated with real estate as loan security. You need to provide your education financing partner with:
- The property title deed
- The registered sale agreement
- The original registration letter from the relevant government authority
- All previous chain of sale deeds to establish title
- Recent property tax bills or a utility bill with the same address
- The approved plan for a built property
- Documents proving ownership history for the previous 30 years
- The most recent property tax receipt
- Occupancy proof
What Is the Maximum Loan Amount Allowed for a Secured Loan?
The loan amount you are eligible to take depends on several factors. Firstly, the financial institution will look at your family’s current finances, including the annual income and expected outgoings. Next, they will consider the credit score of your co-borrower or guarantor. Based on these factors and the value of the collateral, they will provide you with a maximum loan amount for your higher education. Many financial institutions provide up to 100% of the collateral value. Others only offer up to 75% of the collateral value as the loan amount.
How Do I Calculate My EMIs?
When you take a student loan, you agree to pay back the loan amount and accrued interest over a given period in Equated Monthly Instalments (EMIs). You must understand your monthly income and outgoings to ensure you do not default on your EMI payments. You can use an online EMI calculator for education loan to quickly calculate your potential EMI amount. The calculator uses the loan amount, interest rate and tenure to calculate your potential EMIs. Online calculators allow you to try different loans and tenures until you arrive at an EMI amount that seems affordable. You can then use the calculator to estimate the loan amount you should take. By reverse-engineering the process, you ensure you do not apply for a loan that would stretch your finances in the future.
Some people worry about offering collateral for a loan. Education-focused financial institutions like Avanse offer secured and unsecured education loans, allowing you to decide the best way forward. You can select the option that best suits your requirements. Always check your online loan eligibility before applying to avoid unnecessary disappointment. You should also calculate your EMI amount to prevent defaulting in the future. Once you have a clear idea regarding how much you need and what you can afford, you can apply for a loan from your preferred financial institution.
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