What is an Education Loan?

Education can sometimes be an expensive affair. Financial aid in the form of an education loan or scholarship can help students and parents alike. We will discuss a few types of education loans in this article today. This will help you get a better understanding of loans taken out for aiding education.

So, let’s get started.

Types of Education Loan

There are several types of education loans in India based on various factors. Here are a few of them for your understanding:

Based on Location

• Domestic Loan
• Study Abroad Education Loan

Based on the security of collaterals

• Loan against Deposit
• Loan against Property
• Loan against Securities

Let’s discuss these in detail now.

Domestic Loan

As the name suggests, a domestic loan is a type of loan that is extended by a financial institution within the same country to an individual or an organization. The term “domestic” refers to the loan being granted within the country where the borrower resides or operates.

These loans can be used for a variety of purposes such as purchasing a home, financing a car, starting, or expanding a business, or consolidating existing debts. The terms and conditions of domestic loans may vary depending on the lender, borrower’s creditworthiness, loan amount, and the purpose of the loan.

Study Abroad Education Loan

Study abroad education loans are specially designed for students who are looking to aid their higher studies in a foreign university. These loans may attract higher interest rates than domestic study loans. Such loans are provided by both private and government lenders. Some universities and colleges also offer their own student loan programs.

Loan against Deposit

A loan against deposit is a type of loan offered by financial institutions to their customers who hold deposits such as fixed deposits, recurring deposits, or savings deposits. The loan is given against the security of the deposit and the amount of loan sanctioned is usually a percentage of the deposit amount.

The interest rate charged on such loans is typically lower than other types of loans because the deposit serves as collateral or security for the loan. Additionally, the loan tenure is usually limited to the remaining period of the deposit.

Loan against deposit is a popular option for those who need funds but do not want to break their deposits prematurely. It also helps to maintain the continuity of the deposit and earn interest until maturity.

Loan against Property

A loan against property (LAP) is a type of secured loan that allows a borrower to use their property as collateral to borrow funds from a lender. The property could be a residential or commercial property, and the loan amount is typically a percentage of the property’s value.

The interest rates for a loan against property are generally lower than those for unsecured loans, such as personal loans, since the lender has the security of the property as collateral. However, the borrower is at risk of losing their property if they are unable to repay the loan.

LAPs can be used for various purposes, such as funding a business, financing education or marriage expenses, or consolidating debt. The loan amount is determined by the market value of the property, the borrower’s income, and the credit score. Remember to pay your EMIs on time to avoid seizing of the property.

Loan against securities

A loan against securities is a type of loan where you pledge your securities (such as stocks, bonds, mutual funds, or other securities) as collateral to obtain a loan from a lender.

The amount of the loan is typically a percentage of the value of the securities pledged as collateral. The loan amount can vary based on the type and value of the securities, as well as the policies of the lender. The interest rate for a loan against securities is generally lower than an unsecured personal loan because the lender has the security of the pledged securities. Additionally, the borrower is usually able to maintain ownership of the securities during the loan period, allowing them to continue to benefit from any appreciation in value.

If the borrower is unable to repay the loan, the lender can sell the securities to recover the outstanding amount. Therefore, it is important to carefully consider the risks associated with a loan against securities before deciding to take one out.

Talk to various lenders to get the best possible offer for an education loan.

Also read: What Is an Unsecured Personal Loan?