Home > News >  What to Choose: Loan with Collateral or Loan without Collateral?

What to Choose: Loan with Collateral or Loan without Collateral?

Pranjal Singhal Pranjal Singhal
Content Curator

What to Choose: Loan with Collateral or Loan without Collateral?

Availing an education loan for higher education acts as a great help, especially when the costs are rising every year. In case when the families are not able to fund the entire college fees, education loans come to the rescue. However, many banks ask for certain kinds of security or collaterals in return for these loans.

Providing such collaterals becomes a challenge for the students and parents at times. The good thing is there are banks and NBFCs which are offering education loans without asking for any kind of collateral or security. SBI Scholar Education Loan Scheme doesn’t ask for collateral. UCO Education Loan Scheme doesn’t charge any collateral for a loan up to INR 15 Lacs. These banks offer collateral-free loans for different aspects ranging from the college chosen to the loan amount.

What is Collateral?

“Collateral” is the term used to refer to something that a borrower promises to the lender as a backup in case the borrower is not able to pay back the loan. Once the borrower fails to pay back the loan, the lender gets the right to take over the assets promised in the form of collateral.

Collaterals can be in the form of property, LIC premiums, assignment fo future salaries and much more. The loans which are pledged with collateral are often referred to as “Secured Loans”.

Provisions of Collateral

Many banks charge collateral from their customers. However, banks don’t charge collaterals for loan amounts ranging up to INR 4-7 Lacs in most of the cases. Certain cases other than the loan amount in which banks don’t charge collaterals are:

  • Vocational Courses

  • Premier Institutes like IITs and IIMs

  • Working Professionals

In the case of working professionals, banks just ask for the personal guarantee of a person acceptable to the bank.

Forms of Collateral

Banks may ask you for collateral in the form of:

  • Property papers

  • LIC premiums

  • Land submissions of value equalling 1.33 times the value of loan

  • Fixed Deposits

  • Assignment of future salaries

Benefits of a Loan With Collateral

A loan which asks for collateral brings a lot of benefits with it. Some of them are:

  • Loans with collaterals have low interest rates.

  • They are secured and allow for high amount disbursal.

  • They are accepted in all countries.

  • It is not necessary to pay EMIs during the course in a loan with collateral.

  • Loans with collaterals also attract many beneficial government subsidies.

Benefits of a Loan Without Collateral

A loan which doesn’t ask you for collateral also has many benefits.

  • Any student with a good credit score can get an education loan easily.

  • Parents don’t need to trouble themselves to arrange for an asset for collateral submission.

  • Loans Without Collateral take less turn-around time, i.e., they are disbursed in less time.

  • Generally, loans without collateral cover a wider range of expenses.

Many banks and NBFCs have established different provisions for charging collaterals independently. So, before you go for an education loan, read these points to get the best out of it.