Role of Collateral in Securing an Engineering Education Loan
Introduction
When applying for an engineering education loan, one critical factor to consider is collateral. Depending on the loan amount and the lender’s policy, students may be required to pledge assets as security. Understanding how collateral works helps students & their families make smarter, more confident decisions when applying for an education loan.
What is Collateral?
Collateral refers to an asset—such as property, fixed deposits, or other valuables—that is pledged to the bank as a guarantee for the loan. If the borrower fails to repay, the bank has the legal right to recover the dues by liquidating the collateral. For higher loan amounts, most lenders require this form of security.
Loan Amounts and Collateral Requirements
Most banks offer engineering education loans up to ₹7.5 lakh without requiring collateral under schemes like CGFSEL. For loans exceeding that limit, collateral is usually mandatory. The value of the collateral should typically cover the loan amount and provide sufficient security to the lender.
Types of Acceptable Collateral Common assets accepted as collateral include:
- Residential or commercial property
- Fixed deposits (with lien marked)
- Government bonds or LIC policies
- Agricultural land (in certain cases)
Each bank has its own criteria for evaluating the value and acceptability of these assets.
Advantages of Secured Loans
An engineering education loan backed by collateral often comes with lower interest rates, longer repayment terms, and higher loan limits. It also increases the chances of getting the loan approved, especially for students from low-income families or those who dont have top academic scores.
Risks Involved
While secured loans offer better terms, the borrower must be confident in their ability to repay. If the loan is not repaid, the pledged asset may be forfeited, which could have detrimental financial effects on the family.
Conclusion
Collateral plays a significant role in obtaining an engineering education loan, especially when seeking large sums. Understanding the implications and evaluating the risks & benefits ensures that both students & parents make wise financial decisions when securing their future.