If you are also wondering "is collateral needed for an education loan?", then it is important to understand that there are some factors that go into determining whether or not collateral is required for an education loan.

However, it is not necessary to pledge collateral for education loans! You can opt for a non-collateral education loan where you're not required to put up any collateral. But by pledging collateral you can get a secured education loan and it comes with a better overall loan offer for students like lower interest rates, larger amounts, lenient loan terms, etc. 

To better understand the difference between secured and unsecured education loans you can also watch out 7th episode from the web series "Loanflix in Hindi" which is embedded below-

Factors determining collateral requirements for education loan

Moving on to the factors that go into determining whether or not collateral is required for an education loan which are-

  • Lenders- It is necessary to pledge collateral in Government banks for education loans if your loan requirement is more than 7.5 lakhs. However on the other hand private lenders can give up to 60 lakhs without collateral. 
  • Eligibility- Private lenders do not just give non-collateral education loans, there are eligibility parameters set by private lenders for it. So if you do not deem eligible for a non-collateral education loan, your only option is an education loan with collateral. 
  • Profile- By profile, we mean your academic records, course you want to pursue, country, and university you want to pursue from, etc. So if your profile is weak (average marks, less-known university, etc) private lenders will not provide non-collateral education loans and so again your only option is an education loan with collateral from government banks. 
  • Course- For courses like MBBS, Ph.D., and other less job-oriented courses, you are required to pledge collateral to Government banks for an education loan as private lenders will not fund these courses at all.  

What is the difference between collateral and Non-collateral education loan?

As you already know that a secured student loan requires collateral security, but an unsecured education loan does not. However, it is not just the definition that changes but an entire education loan product and its experiences that change as well.

Here are the differences between collateral and Non-collateral education loan-


Collateral Loan

Non-Collateral loan

Loan amount 

Can expect a larger sum up to 1.5 crores

At max you can get up to 60-75 lakhs 

Interest rates

Comparatively 2-3% lower interest rates 

It is slightly expensive, starts at 10%


Require a lot of documents (applicant’s, co-applicant’s, collateral)

Comparatively less paperwork needed

Processing time 

Takes longer to get sanctioned, minimum 15 days

Can be done as quick as 3-4 days

Embassy acceptability

All countries’ embassies accept  secured loans as proof of funds.

A few countries do not accept  unsecured loans as proof of funds for the student visa process.

Eligibility parameters 

The first thing that comes in is the eligibility criteria for the two types of loans. The eligibility criteria set for a non-collateral education loan are quite stringent compared to that of a collateral education loan.
The lenders will check your past academic (which should be excellent), course (should be job-oriented), country (should be major abroad-destinations), etc for a non-collateral education loan. 

Whereas when you pledge collateral (especially to government banks) you bypass most of the eligibility parameters which are set for a non-collateral education loan. Don't get me wrong, there will be eligibility criteria just not as strict. 

The reason that the eligibility requirements for a collateral education loan are less stringent is that lenders take collateral to mitigate the risk in an event of default. 

Co-applicant profile

For non-collateral education loans, there is another set of eligibility criteria for a co-applicant set by lenders. It is important for your co-applicant to have a good income with proper ITR and proof.

On the other hand, when you opt for a collateral education loan (especially from a government bank), there are no such requirements. Even if your co-applicant is retired or a farmer, they can be named as your co-applicant which is not possible in the case of a non-collateral education loan. 

The reason behind this is, for a non-collateral study loan, students are needed to start paying their monthly interest during the moratorium period (according to lenders policy). So while you are studying abroad, your co-applicant is supposed to pay those payments.
In addition, unlike collateral education loans, where the pledged collateral serves as a security for the lender, a co-applicant with a solid earning assures the lender that if the student fails to repay the loan for whatever reason, his or her co-applicant would repay the debt.


The required documents and documentation time, both are less in non-collateral education loans if compared to that of collateral education loans. 

For a collateral education loan, you are required to present all the collateral-related documents as well. If you do not have certain collateral-related papers, say "Property Title Deed" then you'd have to obtain it by writing an application to the registrar of deed and all. And it can take up your valuable time during the education loan process. 

This is why you should always apply for your education loan as early as possible. Banks do not start your loan process before you get an offer letter from the university. But you can apply via WeMakeScholars, as we're associated with 10+ major public and private lenders, we can start your loan procedure at the earliest, and we'll let you know in advance what all documents you'll need depending on the lender and your region.

Education loan offers- Amount and Interest rates

When it comes to education loan schemes for abroad studies, non-collateral education loans come at slightly higher interest rates which start at 10.5%. On the other hand, collateral education loans start at 7.65%. And a 3% interest rate difference can have a huge impact on students' finance in the long run. 

Collateral education loans don't just come with lower interest rates, but also a larger loan amount (If required). You can get up to 1.5 crores with collateral depending on the value of the pledged property and your total loan requirement. And you can get up to 60 lakhs non-collateral education loan depending on your eligibility.

Processing time

The processing time for a non-collateral education loan is just about 7-10 working days at max once all the documents are submitted. Since the evaluation of a student is done based on his profile and there aren't many documents involved, the loan processing time is very low. 

Unlike non-collateral education loans, collateral education loans may take months for the entire loan process. Because there is collateral involved, you first need all the collateral-related papers, following which the bank appoints a lawyer and an engineer who then submit the legal and valuation report to the bank after assessing your pledged property. And all these processes can take your time. 

However, when you apply via us, your assigned financial officer coordinates effectively with all the concerned people and gets your collateral education loan done within 15-20 working days. 

Embassy acceptability

When you take an education loan for abroad studies, you are also required to take care of the visa requirements of that country. For eg, for different countries as per their visa requirements, they require you to transfer your 1-year living expenses, 1-year tuition fee, or both before applying for the student visa.

A few embassies of certain countries do not accept non-collateral education loans as a source of finance for the visa process, but they all accept collateral education loans (Not third-party collateral).

The reason behind this, what authorities think is “students with collateral education loans will return to their country post completing their studies”. And students with non-collateral education loans will immigrate to their country since they have nothing to return for.

Which one should you take- collateral or non-collateral education loan?

If you ask us, we always suggest our students give preference to collateral education loans from government banks since there you can get a larger loan amount with lower interest rates, a payment-free moratorium period, and many more advantages.  

However, students should also apply for a non-collateral education loan as a backup in case their collateral education loan gets rejected at the last moment. 

We understand that it can be overwhelming for students to take care of their entire education loan process alone which is also why we suggest you to apply via WeMakeScholars. Our financial officer will be your buddy throughout your entire education loan process.