✓ Education Loan on collateral
✓ Eligibility Criteria For Education Loan Explained
There are many doubts among students related to education loans on property and one of them is whether they can get an education loan on a property that already has a loan on it. We get students asking questions in comments if “banks give education loans on collateral security that is already pledged for another loan or not?”
And that’s why we decided to cover this point as a whole in this article.
Yes, banks give an education loan on collateral that is already under another loan, be it a home loan or an education loan (could be for your sibling). How much you can get will depend on the current market value of the property, the pending amount to pay off the loan, the lender, you’re taking it from, and so on. However, a property already under a personal or business loan cannot be pledged again before you clear off the loan.
This will be a comparatively short article that aims to provide knowledge on how to get a student loan on home loan property. We are covering this topic since our viewers on the LoanFlix web series have been asking us whether they can re-pledge the property that is currently under another loan or if will they get an education loan if they have a home loan.
You can also watch the third episode in the Inshorts series which will clear all your notions about an education loan on a home loan property.
The term "home loan property or property already pledged" can be confusing for many, as it may mean two things. So let's break it down and understand what it is through scenarios.
Scenario 1 - Assume your parents have taken a home loan by putting the home itself as security. Suppose the parents had taken 50 lakhs as a home loan 15 years ago and have been paying EMIs ever since and have paid off 40 lakhs towards their home loan.
So the question was will the banks accept and provide you an education loan on this property (Home)? As already answered, banks can provide an education loan on such property.
Scenario 2 - Your elder sister has taken an education loan for higher education by putting your parent's home as collateral security. She had taken a 50 lakhs collateral education loan 5 years ago and has paid off 40 lakhs towards her education loan.
Now again the question is, can banks provide you an education loan for your higher studies on the same property (Home)? Yes, banks can provide an education loan on such property.
The home that was pledged as security in both the above scenarios may be referred to as a home loan property by different peoples. I hope this must have given you some clarity on which all collateral/property is referred to as "home loan property or property already pledged".
With that, now you know you can pledge collateral that is already under home/housing loan as security for an abroad education loan.
There is a common misconception among students and parents that a home loan property cannot be pledged as collateral security for a collateral education loan.
This assumption that a property would be rejected because it has a housing loan is a complete myth and a misleading assertion.
Due to the lack of information regarding the various clauses of education loans, students are not aware that they can get an education loan on a home loan property as well. As a result, students end up opting for unsecured education loans, which have higher interest rates.
The standard eligibility criteria will be the same for a student applying for an education loan like their past academic records, university, the country they are going to, etc.
What lenders will also check is your and your co-applicants CIBIL score and if you've been paying your home loan EMIs on time, it will reflect on your CIBIL report which will work in your favor.
To calculate the considerable amount on home loan property, different lenders use different formulas. The following are the two key factors that go into determining the amount of a home loan property-
1. The market value of the home loan property being pledged
2. The pending amount that has to be paid to clear off the loan.
The above-mentioned factors greatly affect the final education loan amount to be granted by the banks.
It must be clear by now that banks do accept home loan property for education loans. However, banks will not give education loans on the original value of the property. Apart from the pending loan amount to be paid against your home loan, the respective bank will calculate a certain percentage as risk margin, and deduct this value from your actual collateral value. You will then get an education loan on the balance amount.
For example - suppose you have a pending loan of 10 lakhs on collateral whose current value is 50 lakhs. So the formulae to calculate the considered value of the collateral is
Current collateral value- (risk margin x pending loan) = considered value for education loan.
Let’s say the risk margin here is set by the lender is 1.5
Put values in the formulae you get
So here, the collateral value which the lender will consider is 35 lakhs and not 50 lakhs.
Mind you, different lenders keep different risk margins for calculation. If you have a home loan with any bank, you can use this calculator to calculate your considerable amount on home loan property.
You can also get in touch with our team at WeMakeScholars, as they can tell you not only how much you can get on the home loan property but can also assist you during your entire education loan process.
It is usually advised to get your education loan from the same bank your home loan is currently with because it will eliminate the legal and valuation of the property, since the bank has all the collateral documents with them already, the loan process can be done faster.
If you take an education loan from a different bank then you are required to transfer your home loan to the bank where you’re taking an education loan from. This may take longer than expected, which is why you should apply for your education loan early.
To answer the question, which banks are best? Government banks undeniably provide the best deal on education loans like lower interest rates, payment-free moratorium periods, etc. If your home loan is currently with a government bank like SBI, BOB, etc, it is better to apply for an education loan in the same bank.
If your home loan is currently with a private bank, it is better to transfer it to any of the government banks and then apply for an education loan in the government bank. The effort will pay off in the long term, as you will save lakhs of rupees thanks to the government banks' reduced interest rates.
In most cases, candidates are well aware of the benefits offered by the Government banks, still, many of them hesitate to process through Government banks due to a lot of misconceptions in the market like delayed loan process, delayed responses, etc.
Yes, Government banks may take longer to process your education loan, however, this is not the case when you apply via WeMakeScholars. We work closely with banks to ensure that your loan is approved in the shortest period possible.
1) Lower rate of interest- If you are opting for a loan in the same bank where you have your existing loan, you are helping the lender to reduce their risk as they already have all your collateral documents and for that reason, banks provide lower rates of interest. In the case of public banks, loans start from as low as 8.30%. Which helps you to save lakhs of rupees in the long run.
2)Higher value of the loan- once you calculate your current collateral value as per the calculation given above. With this loan offer, now you are eligible to get 65-100% of the current collateral value. To maximize your collateral margin please reach out to our financial officers by requesting a callback.
3) Longer repayment duration- The benefit of a loan against property provides you with an easy repayment schedule and long repayment tenure. You can extend your loan repayment duration up to 15 years and repay your loan as per your financial comfort. For your, convenience WeMakeScholars provides you best use EMI calculator where you can choose your EMI as per your budget.
4) Longer moratorium period- This is also called the grace period, which is your course duration plus 6 months which can be extended up to 1 year where you have the choice not to pay anything during the moratorium period it's all up to you, you can choose to pay it but not mandatory to pay.
5) Tax benefits: Applicants who take an education loan on loan property can also claim tax benefits under Section 80E of the Income Tax Act. The deduction is available for up to eight years or until the loan is repaid, whichever is earlier.
Is property required for education loan?
No, the property is not mandatory to get an education loan. Students can get an education loan without collateral i.e. without pledging any property or any other asset which are provided by Private banks or NBFCs in India. But if students are willing to process through Government banks, then yes, the property is required to get an education loan. For loans above 7.5 lakhs, Government banks ask for collateral security.
Can I get education loan if I have home loan?
Yes, you can get an education loan even if you have a pending home loan. It depends on two factors: (a)The market value or realizable value of the property being pledged and (b) The pending home loan amount to be paid on the property. These two factors greatly affect the final education loan amount to be granted by the Government banks.
Will I get the full loan amount of collateral value ?
In general, banks do not provide the complete loan amount based on the value of the collateral property. Rather, the loan amount that a borrower can obtain is limited to a specific percentage of the property's market value, which is called the loan-to-value (LTV) ratio. The LTV ratio is established by the bank's policies and the borrower's creditworthiness and typically falls within the range of 65% to 100% of the property's worth.
Do I have to pay higher interest on my education loan on the existing loan property ?
The interest rate for an education loan taken against an existing home loan property can vary, depending on the bank's policies and the borrower's creditworthiness. Some lenders may offer a lower interest rate on such loans, while others may charge a higher rate due to the perceived increased risk. It's advisable to compare loan offers from different lenders to find the most appropriate option. For any additional information please request a callback from our financial officer.
Is it easy to get an education loan on home loan property?
Obtaining an education loan by using a home loan property as collateral may be relatively easier because the borrower is providing the lender with a reduced risk. However, the approval of the loan depends on the applicant's creditworthiness, ability to repay, and other relevant factors. Meeting the eligibility requirements and submitting all of the required documentation can improve the chances of obtaining loan approval.