While many students and parents would like to go for an overseas education loan, very few of them are aware of one of the most important components of getting an overseas education loan, collateral.
While looking at all the Funding Options for Overseas Education, an education loan is the best bet in terms of many aspects such as documentation for visa, hassle-free funding, improving the credit score, etc.
Understanding Collateral
An asset that you provide the lender organization against your loan, to ensure your prompt repayment is known as collateral.
There are 2 types of collateral:
The most preferred collateral to be mortgaged is a house or a flat.
Reasons for Mortgaging Collateral
Collateral offers a measure of security to lending institutions such that, if the borrower/co-borrower fails to repay the loan amount, the price can be recovered by selling off the collateral which has been mortgaged with the bank/ institution.
Another minor reason for mortgaging a property/asset is that it drives the borrower to a faster repayment in order to be free of the mortgage and be eligible for another kind of loan against the same collateral.
Collateral Valuation & Problems Faced
Since collateral acts as a guarantee to recover the loan amount in case the borrower defaults on loan repayment, the bank officials need to ensure that the collateral’s worth is correctly calculated, to ensure that the loan amount will be recovered, in case they need to sell off the asset. This valuation is particularly needed in case of property/ flats/ houses or bungalows, wherein the bank officials verify the asset’s actual worth in the current market.
A frequent problem faced is that property papers may be a lot older or incomplete, due to which the bank may not accept the case on the grounds of pending documentation. In such cases, the borrower has to face a lot of delays and may even miss the University intake deadline. Hence it is advised to consult an education loan adisor, for getting a loan instead of directly approaching a bank. These advisors are experts at handling student loan cases and get the property papers checked by panel lawyers who offer correction comments before the property papers are finally submitted to the bank.
Loans Without Collateral
The great news for borrowers without the required assets is Unsecured Overseas Education Loan, which does not require the borrower to mortgage an asset. These loans without collateral are granted by both public banks as well as private financial institutions. The current maximum amount granted by public sector banks as unsecured loan is INR 7.5 Lakhs while the private banks allow amounts as high as INR 40 Lakh for Unsecured Overseas Education Loans.
These are some of the important aspects about collateral that borrowers must be aware of. As stated earlier, getting the services of an Education Loan Advisor would highly reduce the time and efforts on the borrower’s side and improve the chances of getting the right kind of education loan package.
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