When you apply for an education loan for studying in India or abroad, most banks ask for collateral security.
Collateral security means movable or immovable property that is offered by applicant or co-applicant to the bank for securing loan collateral could be any one of the following: –
Examples of collateral security
- Moveable collateral – Fixed deposit
- Immovable collateral – Property ( non – agriculture )
After completing their course whether it is graduation, post-graduation or diploma, or any other vocational courses, sometimes all students aren’t able to get jobs immediately. So banks require collateral security to reduce the risk involved in paying off the credit.
Need of collateral security
The bank has no guarantee of the future income of students who borrowed a huge amount of loans. Collateral security fills the need for security of banks.
How much collateral security is needed for an education loan?
Collateral security varies from bank to bank and also in different types of education loan schemes.
| Name of bank | Section amount for education loan |
| SBI – State Bank of India | 70% of the collateral value as the loan amount |
| Bank of Baroda | 100% of the collateral value as the loan amount |
| Private sector banks, Axis bank and other private banks | 65%-70% of the collateral value as the loan amount |
For example – if the value of any property is estimated at approximately INR one crore . Then state bank of India will sanction an Approximately education loan against the property Rs. 70 lakhs.
Bank of Baroda would sanction Rs. One crore and other private banks would sanction 65 lakhs to 70 lakhs.
How to estimate the value of property which is used as collateral security?
The collateral value is evaluated by authorized property evaluators.
What is Third-party collateral Security ?
Third-party collateral:- In any case, a student or borrower does not have collateral security. Then they can use third-party collateral that belongs to a friend or a relative. The original documents of the collateral security have to be submitted to the bank.
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