Top 5 Collateral Education Loan Rejection Reasons in 2025

Studying abroad requires funds, and an education loan is a rescue that you can use to afford your education abroad. But many students assume that an education loan with collateral gets easy approval, but that’s not always the case.

In reality, education loans with collateral are rejected frequently, and often for reasons that students and their families overlook. From property-related issues to academic concerns, several factors can influence a lender's decision. In this blog, we will discuss the top 5 reasons why education loans with collateral are rejected in 2025 and explain how you can avoid these pitfalls to increase your chances of approval. 

Top 5 Reasons Why Banks Reject Loan Applications with Collateral

One of the most common reasons for loan rejection is the inadequacy of collateral. Collateral loans have some terms and conditions related to them and the rejection are common. The common reasons that are told by the lenders to reject the application are as follows:

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  Inadequate collateral value
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  Unacceptable collateral type
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  Poor academic performance 
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  Incomplete documentation 
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  Low CIBIL score

Let’s read about them in detail to find out about these 5 reasons in detail. This information would also help you avoid the mistake and increase your chances of approvals.

Inadequate Collateral Value:

Banks have strict guidelines for the minimum value of collateral required against a loan amount. If the value of the pledged asset does not meet the required loan amount value then your application may be rejected.

For instance, Rahul, an MS aspirant in the USA, applies for an education loan of INR 60 lakhs and pledges his house as collateral. However, upon evaluation, the property is valued at only INR 50 lakhs. Since the collateral doesn’t cover the loan amount, the bank rejects the loan application.

Unacceptable Collateral Type:

There are some specific types of collateral acceptable to the bank. Usually, residential real estate (like flats or houses), certain types of properties are either unacceptable or subject to strict restrictions.

Common Types of Rejected Collaterals:

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  Agricultural land
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  Open land without boundaries
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  In Telangana: Notary-registered properties
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  In Karnataka: B Khata properties
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  In Delhi, GPA or leasehold properties

Poor Academic Performance:

The lender is providing a hefty amount to fund your studies abroad, thus, they evaluate your academic scores during the loan approval. This helps them assess employability and future repayment potential.

If your marks in Class 10, 12, or graduation are below 40%, your loan application may be rejected. Backlogs or failed years may also raise red flags, as they indicate a higher risk of non-repayment.

Incomplete Documentation:

Collateral education loan requires lots of paperwork, and thus, the loan can be rejected in case of missing or incorrect documentation. The most missed document is an Occupancy Certificate (or Approved Map in some regions), which confirms legal construction of the property. If missing, you will need to retrieve it from your local municipal authority. This process would take around two months, making the planning time deficient.

You can avoid this by taking the help of the GyanDhan. We provide a:

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  Customized document checklist for students.
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  Doorstep document pickup service.
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  Relationship Officers recheck the documents.
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  Resolve any document-related issues, if any. 

Low CIBIL Score:

The profile of the borrower and the co-applicant gets checked before the loan approval. Thus, CIBIL Scores matter even during the collateral education loan.

A low CIBIL score indicates delayed or missed repayments in past loans and is seen as a sign of poor financial discipline. This leads banks to believe you might default in the future, resulting in rejection.

How to Avoid These Common Loan Rejection Reasons

"Can education loan be rejected?" Yes, but you can also avoid these rejection reasons. Follow the cautions below to avoid the rejections:

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  Confirm the market value of your property beforehand.
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  Enquire whether your collateral type is acceptable to the bank you’re applying to.
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  Maintain a strong academic record, or be ready with explanations and supporting documents.
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  Prepare all documentation thoroughly and in advance.
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  Monitor your CIBIL score and your co-applicant’s as well.

How to Fix a Rejected Loan Application?

If your education loan application was rejected, don’t panic. Here’s a step-by-step guide to help you fix it:

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  Identify the Reason: Ask the bank for a detailed reason behind the rejection.

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  Correct the Issue: Whether it’s a low CIBIL score, poor documentation, or inadequate collateral, take steps to resolve it.

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  Reapply with Corrections: After fixing the issue, approach the same bank or a different lender.

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  Seek Expert Help: Platforms like GyanDhan can assist in reviewing your case and suggesting the best course of action.

From inadequate credit history and collateral to incomplete documentation and mismatched loan requirements, there are numerous pitfalls that applicants must navigate. Nevertheless, with proper guidance and support, these challenges can be overcome.

This is where GyanDhan, a leading education financing platform, shines as a beacon of hope. With its vast experience and expertise in the field of education loans, GyanDhan has helped countless students fulfill their dreams of studying abroad. They offer comprehensive assistance, from selecting the right loan scheme to assisting with documentation and providing valuable insights to enhance the chances of loan approval.

In your journey toward higher education, let GyanDhan be your trusted partner, working tirelessly to ensure your education loan application meets success. Don't let common hurdles deter you; instead, rely on GyanDhan to navigate the complex world of education financing and turn your academic aspirations into reality. To start your journey, check your loan eligibility.

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