Types of Collateral Security for an Abroad Education Loan

What if the collateral is not located in the same city?

If the property you want to pledge fulfills the bank's eligibility criteria then you can use it as collateral. Using a collateral that is not located in the city you live is possible and such instances are commonly referred to as Multi-city cases and are typically approved by most banks. 

To pledge an asset located in a different city, require bank branches to coordinate with each other. The branch handling the paperwork sends a request to the branch nearest to where the property is located.
 

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What happens to your collateral if you fail to repay your education loan? 

This is a common concern among students who have secured their education loans with collateral. There is often a misconception that missing a single EMI payment will lead to the immediate seizure of pledged collateral. However, that is not true. Banks provide borrowers with ample time and opportunities before actually taking possession of the collateral. 

Documents required for a collateral based loans

The list of documents required for collateral, depends on several factors, primarily: property type, purchase history, and location. Broadly, the following documents are required:

Common documents:

• Registered sale deed
• Approved plan or map of the constructed property
• Chain documents, evidencing the ownership history of the property for the last 30 years.
• Latest property tax receipt.
• Occupancy proof
• Property title deed 
• Original registration receipt for the above agreement 
• Allotment letter by the municipal corporation/authorized govt. authority such as MHADA, CIDCO, HUDA, DDA, JDA, GIDC, etc 
• Previous chain of sale deed establishing title. 
• Most recent property tax bills or electricity bills having the same address. 
• Approved plan/map if the property being pledged is a built one.
• Link documents that prove the ownership history of the said property for the previous 30 years.
• A latest property tax receipt  

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Additional documents if you’re applying for an education loan with a property in the following cities:

Mumbai or Pune

• NA order
• Urban land ceiling order
• NOC from a builder or society
• Share certificate
• Letter of allotment
• Conveyance deed of society
• If CIDCO / MHADA property: NOC and transfer letter

Hyderabad

• Urban land ceiling certificate
• NA certificate, if not included in the sale deed
• 7/12 extract, if not included in the sale deed
• Encumbrance certificate

Bengaluru

• RTC (Record of tenancy certificate)
• Conversion order (from agriculture to residential)
• Khata certificate ( A or B )
• Property tax receipt
• Encumbrance certificate

Note: There can be additional documents required depending upon the city from where the loan application is made. Also, the list of documents required varies from one lender to another.
 

Benefits of collateral based loans

Collateral based loans or secured education loans require the borrower to pledge an asset as security for the loan. This collateral provides assurance to the lender that they can recover their funds even if the borrower defaults on the loan. This type of loan comes with a bunch of benefits.

• Lower interest rates: One of the primary benefits of secured education loans is that they typically come with lower interest rates compared to unsecured loans. Lenders are willing to offer lower rates because the collateral reduces their risk.
• Higher loan amounts: Secured loans often allow borrowers to access higher loan amounts since the collateral's value can be substantial. This can be particularly useful for expensive education programs abroad.
• Flexible repayment terms: Lenders may offer more flexible repayment terms, including longer tenures, which can help borrowers manage their loan repayments comfortably.
• Easier approval: Secured loans are generally easier to secure for individuals with limited credit history or lower credit scores because the collateral acts as security.

Why should you apply early for a loan with collateral?

A word of caution for those who are planning to apply for an education loan with collateral. Make sure that you have sufficient time in hand when applying for such a loan. This is because secured loans take a longer time to get sanctioned because - 

• The bank needs to verify and cross-check all the documents related to the collateral being pledged. 
• Missing or wrong documents may lead to rejection of loan applications or more processing time.
• Bank conducts a property evaluation. 

The best way to cross the above-said hurdles is by applying early so that you have sufficient time to collect and submit the documents while the bank also has enough time to verify the collateral documents. 

When seeking an abroad education loan, understanding the various collateral security options available is crucial. Ultimately, collateral security can help you secure the funding you need to pursue your dreams of studying abroad, but it's essential to manage it responsibly to avoid potential risks.

To ease the process, you can start your journey with GyanDhan. When you apply via GyanDhan, the evaluation of the property and legal report will be done in advance so that it reduces the time later on. The valuation or legal report has a validity period between three months to three years, so getting it done earlier would only benefit the applicant in the quick processing of their education loan application. To start your abroad education loan journey with GyanDhan, all you need to do is check your education loan eligibility here. 
 

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