Higher studies have become very expensive. Because of this even merit class students have to rethink multiple times before opting for a course in abroad or within India. For students from rich families arranging money is very easy; however for a student from a poor or middle income family it becomes difficult.
And in fact many a times their dreams of pursuing higher education in their preferred colleges or universities are broken due to lack of funds. And that’s when financial aid in the form of education loan comes to help. Students can achieve their dream and once they get job either during their study or after that, repayment can be done. If you are earning in dollars/pound/AUD/CAD then post education repayment becomes much easier. You can directly apply for student loan or take a loan against property.
In this article we’ll talk about taking education loan against property.
When the loan amount is greater than Rs. 4, 00, 000 then banks will ask for collateral. This is because there is no surety of student’s income in the future. So in order to reduce the risks, banks make collateral compulsory. It is a win-win situation for both the parties, students will get attractive interest rates, and banks in return earn good profit from the interest.
What is loan against property?
It is a process of mortgaging your property with the credit lender and get money in return which can be utilized for study.
What types of properties are accepted as security?
You can keep following properties as collateral:
- Non-agricultural land
- Shop, etc.
- Depending on the bank, other qualified properties for student loan are commercial shops and B-Khata. The only condition is that the property should have clean title and documentation should be complete.
How does education loan against property benefit?
The biggest benefits of LAP are:
- Loan can be taken for 15 years tenure
- EMI burden is reduced due to longer tenure
- Traditional student loans are not approved if the course is disapproved by University Grants Commission (UGC) or All-India Council of Technical Education (AICTE). However if you get LAP, then you can use it for any course, as banks do not ask the purpose.
- Full loan amount is disbursed in one go
Other benefits of education loan are that the loan amount can be used for:
- Under graduation, graduation, post-graduation, vocational or certificate courses
- College fees payment, library, and laboratory fees and others
- Repayment tenure can be further extended. This situation can arise when a student doesn’t get job immediately after the education is over or if further study is planned.
- Apart from fulfilling the demand of funding for studies, education loan also helps in building credit history. Timely repayment will help in achieving good CIBIL score.
Eligibility of student loan against property depends on following most important factors:
- The market value of the property whether it is commercial or residential. If the value is higher, the loan amount will also increase.
- Location of the property
- Annual income of parent or working individual
- Credit history
What happens when you don’t pay?
Defaults or late payment in education loans or any type of credit affects the credit history of both the borrower and co-borrower. Moreover bank has full rights to take complete ownership of the property which is kept as collateral. Check out Pradhan Mantri Vidya Laxmi Karyakram (PMVLK) to search for education loan providers.
Other charges involved other than interest rate:
Apart from the interest rate which is typically above 11%, following fees are also involved:
- Loan processing
- Part pre-payment
- Late payment
- Stamp duty
- Cheque bounce
- Cheque / SI / ECS swapping
- Property document retention
- Interest rate swapping
- Account maintenance
Note that above charges vary for each bank. It is always recommended to get knowledge of all the hidden fees/charges and also go through terms and conditions in detail, since your property is at stake.
However there are few cons as well of LAP:
- Tax benefit is not available.
- And if you have already mortgaged your property then the same cannot be used for getting any other type of loan.
- Credit approval timeline is lengthy and tedious. This is because bank has to verify the genuineness of the property and all the relevant documents.