In India, it is said that the key to a bright future is education. However, given the increasing cost of education every year, Student Education Loans are the need of most of the students and their parents too. Between a Collateral Education Loan or a Non-Collateral Education Loan, one of the biggest financial decisions will be taken by you in your early stage which will impact for major part of your life financially. 

In this blog we understand Collateral Education Loan Vs. Non-Collateral Education Loans: Which loan should you go for?

What is a Collateral Education Loan?

A collateral education loan is a loan where a borrower pledges an asset (e.g. property, fixed deposits etc.) as security to the lender which would be the bank. It means if you fail to pay the loan back to the lender then the lender i.e Bank can sell off your mentioned asset and gain their money back. These loans are given on low rate interest and easy repayment periods as they are safe as they are secured against assets.

Advantages of Collateral Education Loans:

• Lower Interest Rates: Since collateral education loans are secured by an asset, they generally come with lower interest rates compared to non-collateral loans. This can result in significant savings over the loan tenure.
• Higher Loan Amounts: When you provide collateral, lenders are open to giving you higher loan amounts. This could be very useful if you are planning to study abroad or in an expensive institution.
• Flexible Repayment Options: Collateral education loans generally come with flexible repayment terms i.e. longer repayment tenures which can reduce the monthly EMI burden.

Disadvantages of Collateral Education Loans:

• Risk of Unfortunate Event of Losing Collateral: The major drawback to taking out a collateral loan is that you are risking losing the position if you fail to pay off the loan. This can be of effect at large, especially if the collateral is your family house or another valuable asset.
• Lengthy Processing Time: Since the lender has to ascertain the worth and legality of a collateral, loan approval can take longer time compared to non-collateral loans.

What is a Non-Collateral Education Loan?

A non-collateral education loan or unsecured loan is a type of loan where you can borrow money from lenders without having to submit any security or collateral. In the case of non-collateral education loans, eligibility is judged based on many factors like academic record, reputation of institution got admission into and credit worthiness of the co-applicant (mostly parents/ guardian).

Advantages of Non-Collateral Education Loans:

• No Risk of Asset Loss: When there is no asset pledged as collateral, there is no risk to property or savings, should you default on the loan.
• Faster Processing Time: Non-collateral education loans generally have faster approval process as there is no asset evaluation involved, which is best suited for students who are in need of funds on an urgent basis.
• Access: Students from low- and middle-income families can use loans to help pay for school, increasing access to postsecondary education.

Disadvantages of Non-Collateral Education Loans:

• Higher Interest Rates: Non-collateral loans often have higher interest rates than secured loans because the lender is assuming more risk by offering a loan without security.
• Lower Loan Amounts: Since loans that are not backed by any collateral may have a cap on the loan amount, it may not be enough to cover the complete cost of education, especially for studying abroad.
• Stricter Eligibility Criteria: Lenders may have stricter eligibility criteria for non- collateral loans which may include good academic record and strong credit profile of the co-applicant.

Which Education Loan Should You Prefer & when? Collateral Vs. Non-Collateral Education Loans

The choice between a collateral education loan and a non-collateral education loan depends on several factors, including your financial situation, the course you intend to pursue, and your ability to provide security.

Financial Background:

• If you have any property paper or collateral security then you can avail collateral education loan at lower interest rate and higher loan amount.
• If there is no asset to pledge then only way out is non-collateral Education loan (provided you are eligible as per the lender’s criteria).

Course and Institution:

• Some premier courses and institutes may also make you eligible for non collateral Education loan with good terms, in such case non collateral Education loan may be convenient.
• For the courses or institutions which do not come in the criteria of non- collateral education loans you will have to go for collateral education loan to avail the loan amount required for overseas education.

Loan Amount and Repayment:

• If you require a large loan amount that covers all your expenses related to education, you may choose to apply for collateral education loan as this offers higher loan limits and longer repayment duration.
• Non-collateral education loan could be the solution if you do not need a large amount and are ready to repay faster.

Ruconnect App: Revolutionizing the Education Loan DSA Experience

At Ruloans, we believe in empowering our partners. That’s why we’ve launched the Ruconnect app—India’s first B2B Loan Distribution Channel Partner App, exclusively designed for Education Loan DSAs. With Ruconnect, you can easily apply for education loan DSA, helping your customers secure the student education loans they need while enjoying a seamless experience.

Benefits of the Ruconnect App:

• Quick and Easy Registration: Register as Education Loan DSA in few clicks.
• Quick loan approvals can only be possible when your customers are not required to run around for KYC and other documentation formalities.
• Real-Time Application Tracking: Keep your customers applications tracked in real time and provide update them timely.
• Online Claim Payouts: Get commission on time when loan is disbursed with easy online claims.

By partnering with Ruloans as an Education Loan DSA Agent, you can not only help students achieve their dreams but also earn attractive commissions. With the Ruconnect app, managing your DSA activities has never been easier.

Final Words!

The choice between collateral and non-collateral education loans depends on various factors, including your financial situation, the cost of education, and your comfort with risk. If you have valuable assets and seek lower interest rates, a collateral education loan might be ideal. On the other hand, if you prefer not to pledge assets and need faster access to funds, a non-collateral loan could be the better option.

No matter your choice, Ruloans is here to guide you every step of the way. Explore our wide range of education loan options and find the perfect fit for your needs. And if you’re interested in becoming a DSA, download the Ruconnect app today and start helping students achieve their educational dreams while earning attractive commissions.