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Secured vs. Unsecured Education Loans in India

February 28, 2018By Admin

In India, if you are looking for financial assistance to further your education, there are a myriad of options available. These low-interest student loans are not only easy to obtain but can also be repaid hassle free. That said, it is often seen that in their search for the right loan for higher education, students are led into a crossroad where they have to choose between multiple, equally alluring finance options, especially secured and unsecured education loans. Well, no need to get confused here. Remember, the key here is to educate yourself about your financial situation and then choose which loan is best suited to your needs. To help, we make a comparative analysis of secured and unsecured education loans in India.

Secured Education Loans

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A secured education loan for higher studies is backed by assets (such as a property or car) belonging to the borrower. This allows the lender to reduce the assumed risk while lending. In a scenario where the lender fails to repay the loan, the lender is free to forfeit the assets and obtain the payment. Moreover, secured education loans take longer than unsecured loans to get sanctioned. However, a number of people go for this type of loan because these loans come with flexible repayment terms and low-interest rates.

Unsecured Education Loans

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Unsecured loans, on the other hand, do not require you to provide any collateral or assets when applying for the loan. The loan sanction depends solely on your credit score. Therefore, it is no surprise that most educational loans are unsecured in nature. While unsecured loans from any government bank have an interest rate set by the Reserve Bank of India, those applied from a private bank, usually have interest rate based on the borrower’s profile and credit score. Therefore, if you lack the assets or collateral, you can apply for an unsecured education loan.

Key Difference Between These Two Types of Education Loan –

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First, unsecured education loans do not require any form of security. Therefore, the rate of interest is usually higher and borrowers with poor credit rating have some difficulty applying for them. Moreover, the absence of any security bonds means that the entire application process is seamless and quick. Therefore, if you have bad credit or no security to offer, it is better to apply for an unsecured education loan, otherwise, you have the option to go for a secured education loan.

Secured Versus Unsecured Loans: Who Wins?

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Both secured and unsecured education loans come with several tax benefits under section 80E of the Income Tax Act 1961. That said, both types of loans are seen as debt on your credit profile. Therefore, if you make late payments or default on either loan type, you will be reported. Moreover, while lenders can repossess the collateral in case of secured loans if your asset doesn’t cover the borrowed amount, the lenders are entitled to pursue all remaining debt in court. This is also true in case of unsecured loans. Therefore, you must first consider how the features and benefits of loan category will affect you. Make sure to analyze your repayment schedule and deduce if your projected income will suffice in covering your expenses and loan EMIs upon graduating. Likewise, look for those banks who offer the lowest interest rates.

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