For decades, getting a loan has largely depended on one thing, offering collateral. This could be a house, a car, or even a fixed deposit. These physical assets acted as a safety net for lenders. However, in today’s fast-moving economy, this traditional requirement can often hold people back, especially those who don’t own such assets. That’s where flexible collateral comes in. It acts as a modern solution that redefines what counts as security for availing a loan, be it an education loan or home loan.
Instead of relying solely on traditional assets like property or gold, this approach opens up alternatives such as intellectual property, future income, invoices, or even digital assets. While these may not be tangible in the conventional sense, they carry real, measurable value in today’s economy.
In this article, we’ll explore how collateral requirements for education loans are becoming more accessible. Banks and Non-Banking Financial Companies (NBFCs) are offering adaptable solutions that help students achieve their academic dreams, without being held back by the lack of traditional collateral.
What is Collateral in Education Loans?
Collateral in education loans refers to an asset that the borrower offers as security to the lender. It acts as an assurance that the loan will be repaid on time. In case, a student fails to repay the student loan, the lender has all the legal right to seize and sell the collateral to recover the owed loan amount. In the context of student loans, collateral can be in the form of fixed deposits, property or other valuable assets owned by the borrower or their family members.
Student loan collateral requirements apply to loans that exceed a certain amount, usually around ₹7.5 lakhs in India. For loans below this limit, most of the banks and financial institutions offer student loans without collateral, though they may come with higher interest rates or stricter eligibility criteria.
Student loans with collateral can help borrowers to secure lower interest rates and favorable terms. It helps to reduce the lender’s risk. However, it also places a financial burden on the borrower, as they risk losing their assets if they are unable to repay the loan. Some banks may also accept third-party collateral, such as a family member’s property just to lessen the financial burden on the borrower.
Why Do Lenders Ask for Collateral?
Lending institutions ask for collateral against the student loan to reduce their risk before they offer financial help. Lenders can offer easy loan terms such as larger loan amounts on lower interest rates. Since the collateral lowers the risk for lenders by requesting collateral in lieu of an education loan, at times it’s easier for borrowers to get approval in a shorter period, especially if they don’t have a strong credit score or financial standing.
The common types of collateral that can be offered in the context of an education loan include:
- Immovable Property: This is one of the most common forms of collateral. It includes:
- Residential Property such as house, apartment, or any other property owned by the borrower or their family members.
- Commercial Property such as shops, offices, complexes, or land that generates income or has the potential for appreciation in value.
- Movable Property: This includes valuable assets that can be collateralised, such as:
- Gold jewelry or coins, which are often accepted by banks as collateral due to their high value.
- Fixed Deposits (FDs) in the name of the borrower or their family
- Liquid Collateral: This refers to assets that can be quickly converted into cash. This includes:
- Cash equivalents such as short-term investments that can be easily converted to cash, such as:
- Treasury Bills and Notes: Short-term government debt.
- Money Market Instruments: Low-risk, short-term debt securities.
- Certificates of Deposit (CDs), though some CDs may have penalties for early withdrawal, others can be relatively liquid.
- Marketable securities that can be easily traded on exchanges. These includes:
- Stocks: Publicly traded shares of companies; though they can be more volatile than other liquid assets
- Bonds issued by corporations or governments; high-quality bonds are more liquid in nature.
- Exchange-Traded Funds (ETFs) that track an index or a basket of assets and can be bought and sold like stocks; preferably highly liquid ETFs.
- Government backed Sovereign Gold Bonds (SGBs), which are gold bonds
- Bank Guarantees which is a promise from a bank to cover the debt if the borrower defaults.
- Cash equivalents such as short-term investments that can be easily converted to cash, such as:
- National Savings Certificates (NSCs) issued by government
- Life insurance policies with a surrender value
Note: In cases where the borrower does not have sufficient assets to offer as collateral, a third-party guarantor such as a family member or relative, can be used as collateral. The guarantor’s assets can be utilised to secure the student loan.
Top Banks Offering Flexible Collateral Options
Several top banks in India offer student loans with flexible collateral options and cater to students with limited access to high-value assets. Below is the list of top of banks
| Bank Name | Collateral-Free Loan Limit | Flexible Collateral Options | Loan Amount Above Collateral-Free Limit |
| State Bank of India (SBI) | ₹7.5 lakh | Fixed deposits, life insurance policies | Collateral may be required for amounts above ₹7.5 lakh |
| HDFC Bank | ₹7.5 lakh | Co-applicants, third-party guarantees | Collateral may be required for amounts above ₹7.5 lakh |
| Axis Bank | ₹7.5 lakh | Properties, third-party guarantees | Secured with properties or third-party guarantees for amounts above ₹7.5 lakh |
| ICICI Bank | ₹20 lakh | Flexible collateral, third-party guarantees | Collateral or third-party guarantees for amounts above ₹20 lakh |
| Bank of Baroda | ₹7.5 lakh | Movable or immovable assets | Collateral required for loans above ₹7.5 lakh |
| Punjab National Bank (PNB) | ₹10 lakh (Domestic) | Third-party guarantees | Collateral required for loans above ₹10 lakh |
| Kotak Mahindra Bank | ₹10 lakh (Domestic), ₹20 lakh (International) | Collateral flexibility for larger loans | Collateral flexibility for loans above ₹10 lakh (Domestic) or ₹20 lakh (International) |
Top NBFCs Offering Flexible Collateral Options
Below is the list of NBFCs offering education loans without collateral with key features including coverage for tuition, living expenses, and other educational costs, alongside flexible repayment and personalised loan terms. Students can avail student loans with collateral if they have collateral to provide.
| NBFC | Loan Amount (Collateral-Free) | Secured Loan Amount | Interest Rates | Key Features |
| Tata Capital | Up to ₹85 lakh | Up to ₹2 crore | Competitive rates (varies) | Covers tuition, living expenses, and study materials; flexible repayment options |
| Avanse Financial Services | Up to ₹75 lakh | N/A | Flexible, based on profile | Flexible repayment tenure, loans for both domestic and international education |
| HDFC Credila | Up to ₹80 lakh | Varies based on course | Competitive, based on profile | Customized loans, flexible repayment options, covers tuition and living expenses |
| Auxilo | Up to ₹50 lakh | N/A | Competitive, based on profile | Loans for both domestic and international studies, flexible repayment terms |
| InCred | Up to ₹65 lakh | N/A | Competitive, based on profile | Quick approval process, covers tuition fees, living expenses, and other educational costs |
| Eduvanz | ₹8 lakh to ₹15 lakh | N/A | 15%-45% per annum | Flexible repayment tenure, minimal documentation requirements |
How Much Can You Borrow Without Collateral?
| Bank/Institution | Loan Limit | Eligibility | Repayment Terms | Interest Rate | Collateral Requirement | Additional Details |
| SBI | Up to ₹7.5 lakh (domestic) & ₹15 lakh (abroad) | Secured admission to recognised institutions | 6 months after course completion, max 15 years | 9%–11% p.a. | No collateral for loans under ₹7.5 lakh | Co-applicant required; flexible repayment |
| ICICI Bank | Up to ₹1 crore | Secured admission to recognised courses | 6 months after course completion, max 15 years | 10%–12% p.a. | No collateral | Co-applicant required; higher loan amounts based on course and institution |
| HDFC Bank | Up to ₹20 lakh | Admission to recognised institutions | 6 months after course completion, max 15 years | 10%–12% p.a. | No collateral | Higher limits for courses in premier institutions |
| Axis Bank | Up to ₹20 lakh (abroad) & ₹10 lakh (domestic) | Secured admission to recognised institutions | 6 months after course completion, max 15 years | 10%–13% p.a. | No collateral | Co-applicant required |
| Bank of Baroda | Up to ₹40 lakh (abroad) | Admission to recognised institutions | 6 months after course completion, max 15 years | 9%–11% p.a. | No collateral for loans under ₹40 lakh | Co-applicant required; flexible repayment |
| CGFSEL | Up to ₹7.5 lakh | Admission to recognised institutions | 6 months after course completion, max 15 years | 9%–10% p.a. | No collateral | Government-backed guarantee for loans up to ₹7.5 lakh |
| Kotak Mahindra Bank | ₹10 lakh (Domestic), ₹20 lakh (International) | Collateral flexibility for larger loans | Collateral flexibility for loans above ₹10 lakh (Domestic) or ₹20 lakh (International) |
Factors that Affect Collateral Requirements
Collateral requirements for education loans can vary significantly depending on several factors. Below are some of the prominent factors that affect collateral requirements:
- Loan Amount: The education loan amount determines the collateral needs. Larger loan amounts require collateral, as the lender wants to secure the loan in case of default.
- Course and Institution: The type of course and the institution where the student plans to study can impact collateral requirements. Student loans for studies at reputed institutions may not require collateral, while loans for lesser-known institutions might need some form of security.
- Co-applicant’s Financial Standing: If a parent or guardian is a co-applicant, their financial status will be taken into consideration. A strong financial standing helps to reduce the need for collateral, as the lender is more confident in the ability to repay the e loan.
- Applicant’s Profile: Students’ academic background, career prospects, and creditworthiness also influence collateral requirements for a student loan. On the other hand, students with a strong academic record or high employability may have lower collateral requirements.
- Loan Provider’s Policies: Different banks and financial institutions have varying policies regarding collateral. Some may offer loans without collateral up to a certain amount, while others may have stricter requirements.
- Repayment Capacity: Lenders assess the applicant’s potential to repay the loan, based on factors such as the co-applicant’s income and the student’s expected earnings after completing the course. Strong repayment capacity can eliminate collateral requirements.
Frequently Asked Questions (FAQs)
1. What is the maximum amount I can borrow without providing collateral for an education loan in India?
Most banks offer student loans without collateral up to ₹7.5 lakh. Some private banks and NBFCs may go up to ₹20–₹40 lakh depending on the student’s academic profile and institution.
2. What types of assets can be considered as collateral for a student loan?
Assets such as residential or commercial property, fixed deposits, gold, life insurance policies, mutual funds, and bonds can be offered as collateral while applying for a student loan. In some cases, a family member’s or relative’s assets may also be accepted.
3. Is it possible to get an education loan without collateral for studying abroad?
Yes. Several banks and NBFCs offer loans without collateral for studying abroad, especially if the student secures admission in top-ranking universities or professional courses.
4. Who can provide third-party collateral or act as a guarantor for an education loan?
Parents, guardians, or close relatives can provide third-party collateral or act as guarantors to support the student’s loan application.
5. How does offering collateral influence the interest rate of my education loan?
Providing collateral usually allows lenders to offer lower interest rates and better loan terms, as it reduces their risk.
6. Do NBFCs offer more flexible options for education loans without collateral?
NBFCs often provide more personalized education loan options and may approve higher loan amounts without asking for collateral, although interest rates may vary.
7. Can I use a life insurance policy or mutual funds as collateral for an education loan?
Yes. Some lenders accept life insurance policies with surrender value, mutual funds, and even bonds or shares as forms of collateral.
8. What happens if I’m unable to repay an education loan taken with collateral?
If the loan is not repaid, the lender has the legal right to recover the loan amount by selling the collateral provided.
9. Is having a co-applicant necessary for an education loan without collateral?
Yes. Most financial institutions require a co-applicant—usually a parent or guardian—for loans without collateral to ensure repayment support.
10. Can I change my education loan type later if my financial situation improves?
Loan terms are generally fixed at the time of sanction. However, some lenders may allow refinancing or adjustments under certain conditions.