Types of Collateral for Education Loan - ICICI Bank

As a student, investing in higher education is a priority. It is also important because when you pursue a higher degree, it helps boost your career prospects. An Education Loan can be a big financial support in such cases, since you can easily cover major costs like tuition fees, accommodation costs, books and more, using the loan amount. Moreover, a collateral-based Education Loan gives you access to a higher loan amount.

Read this blog post to know more about the key types of collateral accepted for an Education Loan in India. We will also talk about the major benefits of securing a collateral-based loan for your educational journey.

Meaning of Collateral in an Education Loan

Education Loan collateral can be defined as an asset that you pledge with the bank as security for the loan. When you pledge collateral, you get the benefit of getting a higher loan amount, since the bank has assurance of repayment. It is important to note that in case you are unable to repay the loan, the bank has the right to recover the dues by selling or using the pledged asset.

Why do Banks ask for Collateral?

Banks ask for collateral because it serves as assurance for repayment, reducing risk for the bank. Collateral gives students access to higher loan amounts, making it easier to manage tuition fees and other educational expenses. At ICICI Bank, the final loan amount also depends on factors such as the selected course and institution and whether you plan to study in India or abroad.

Types of collateral for Education Loans

Let us know about the various types of collateral for Education Loan that are accepted by ICICI Bank.

1. Immovable Property

Immovable property includes all your real estate assets– both commercial and residential properties are included. This is one of the most common types of collateral in India. Immovable property is highly preferred because it has long-term value and is easy for the bank to secure through legal documentation.

2. Fixed Deposits

Fixed Deposits (FDs) are another popular choice for collateral. Since they are liquid assets and easy to evaluate, banks find them highly reliable. You can pledge your FD as security and in case of default, the bank can quickly recover dues by liquidating the FD. One major advantage is that FDs held with the same bank that you have applied to for an Education Loan make the loan approval process smoother and faster.

3. Non-agricultural Land

Non-agricultural land (plot) is, at times, accepted as collateral. However, it should have a clear ownership title with proper documentation. Agricultural land is not accepted as collateral as per RBI guidelines.

4. Existing Home or Mortgage Loan with ICICI Bank

ICICI Bank also offers Education Loan against a Mortgage Loan
(e.g. Home Loan, Loan Against Property etc.) that you have with the Bank. This is more convenient since the Bank already has the property documents and knows your loan history. This helps the Bank in verifying your application quickly, since the Bank has already approved your earlier loan as well.

Things to Consider When Choosing Collateral

Choosing collateral is not just about picking any asset you own. Here are some important factors to consider:

1. Loan Amount: The value of your collateral should be enough to cover the loan amount you are requesting. For example, if you need a loan of ₹ 20 lakh, the collateral pledged should have a similar or higher value.

2. Liquidity: Liquidity is an important concept that should be understood. Some assets, like Fixed Deposits, are very liquid and can be converted into cash in no time. On the other hand, things like real estate can take a while to sell. This aspect of liquidity is crucial for both you and the bank.

3. Impact on Finances: When it comes to your finances, pledging vital family assets such as your home can lead to significant stress if you happen to default on your loan repayment. It's always a good idea to have a conversation with your family before making such a big decision.

4. Joint Ownership: If the property or asset is jointly owned, make sure all co-owners agree in writing to use it as collateral.

5. Documentation: The asset must have clear ownership records and no legal disputes. Banks usually reject properties with unclear titles.

Benefits of a Collateral-Based Education Loan

• Lower interest rates: When you present collateral to the bank for your loan, you can expect to get lower interest rates as compared to unsecured loans. It is beneficial since this means affordable EMIs and reduced overall repayment costs.

• Higher loan amounts: The value of your collateral directly impacts the loan amount you can receive. For example, when you decide to pledge a high-value property or asset, the bank is more comfortable lending larger amounts, which in turn can make it easier for you to fund expensive education in India or abroad.

• Better chances of approval: When you pledge strong collateral like property or Fixed Deposits, it increases your chances of getting the loan approved. Banks consider secured loans less risky, which makes approvals quicker and smoother for students.

Conclusion

Education is a long-term investment in your future. Hence, Education Loans play a crucial role for many students, considering the rising fees of higher education. Applying for an Education Loan with collateral can help you secure a larger loan amount at an attractive interest rate for education loan. You have many options for collateral when applying for an Education Loan from ICICI Bank, such as immovable property or financial assets like Fixed Deposits.

Before you decide to pledge any asset, it is wise to think about its value and how easily it can be converted to cash. Remember, secured loans tend to get approved more quickly, often come with lower interest rates compared to unsecured loans.

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