Education Loan: Education today is not cheap. Whether it’s higher studies in India or abroad, the fees, travel, and living expenses add up to a huge amount. For most families, an education loan becomes the only way to make a child’s dream possible. But when you apply for such a loan, banks don’t just hand over the money they often ask for collateral and a co-applicant. Why is that? Let’s understand in simple words.
What is Collateral in an Education Loan?
Collateral is security that you pledge against the loan. It can be property papers, fixed deposits, or any other asset that the bank accepts. For smaller education loans (generally up to ₹7.5 lakh), most banks don’t ask for collateral. But if the loan amount is higher, especially for studies abroad, collateral becomes necessary.
From the bank’s point of view, collateral reduces their risk. If for any reason the borrower fails to repay, the bank has something to recover its money from. It may sound strict, but this is how they make sure large loans are safe.
Read more: Business Loan vs Mudra Loan: Which is Better for Small Entrepreneurs and What Are the Conditions?
Who is a Co-Applicant and Why is it Needed?
A co-applicant is usually the parent or guardian who signs along with the student. Since the student is still studying and has no income, banks need someone earning to stand as a guarantor. The co-applicant assures the bank that if the student cannot repay immediately after studies, the responsibility will be handled by the guardian.
This is why almost every education loan application has space for a co-applicant’s details. Their income, CIBIL score, and repayment history matter a lot in loan approval.
Calculation Example for an Education Loan
| Loan Amount | Interest Rate | Tenure | EMI (Approx) | Total Interest | Total Payment |
|---|---|---|---|---|---|
| ₹10,00,000 | 10.5% | 7 Years | ₹16,806 | ₹4,13,544 | ₹14,13,544 |
Here, the student gets funds for studies, but the bank has assurance through the co-applicant’s income and collateral (if applicable) that repayment will not stop.
Why These Conditions Make Sense
It may feel like banks are being too cautious, but remember, education loans are long-term commitments. Students may take time to get jobs, and salaries may not always be high in the beginning. By asking for collateral and co-applicant, banks make sure the loan is secure for both sides. In return, students get a chance to study without worrying about immediate repayment.
Conclusion
Collateral and co-applicant requirements in education loans are not roadblocks—they are safeguards. For small amounts, banks are flexible, but for higher studies with big expenses, these conditions protect both the lender and the borrower. With these in place, students can focus on their education, while parents feel secure that the financial side is handled responsibly.
Disclaimer
This article is only for educational and general knowledge purposes. Loan conditions, interest rates, and collateral rules vary from bank to bank. Please check the official guidelines of your bank before applying for any education loan.
