Going for higher education in India or pursue education abroad has touchdown many aspirations of students. However, the increase of tuition fee, costs of living, and expenses like travel related expenditure and insurance have turned out to be a major burden on families, as educational funding has become a primary concern of many families. In this case, education loans provide financial support to students to give their education aspirations a chance to flourish without stressing family savings.
However, when applying for an education loan, one of the first major decisions a student will face is whether to get a collateral loan or a non-collateral loan. Collateral loans or secured loans are loans where the borrower must put up assets (property, fixed deposits, insurance policies, etc.) against the loan amounts. Non-collateral or unsecured loans are based completely on academic results, co-applicant’s income, and repayment ability without the provision of security.
Both types of loans have their unique set of pros and cons. For the most part, collateral loans will have lower interest rates, higher amounts available to borrow, and longer repayment terms, however, there is a risk to lose the cash collateral or asset pledged to the loan amount if the loan is not repaid. Non-collateral loans are generally processed faster with less paperwork and flexible terms, however, they typically have stricter eligibility requirements, lower maximum loan amounts, and generally higher interest rates.
There are several different criteria to consider; the availability of collateral, the student’s academic history, the country and course of study, and the family’s financial status.
In this blog, we will give you a comprehensive comparison of collateral vs. non-collateral education loans, explain their pros and cons, and guide you on how to decide which type of loan is the right fit for your study goals in 2025.
Importance of choosing the right type of education loan
Choosing the right type of education loan is one of the most important financial choices for any student and family. Since higher education can be expensive (with often multiple significant expenses), the difference between a collateral (secured) loan and a non-collateral (unsecured) loan can directly impact not just the affordability of education, but also long-term financial stability.
Financial Stress for the Family
The type of loan you choose, will determine how much financial stress your family may be subjected to during, and after your education. A collateral loan will likely result in lower interest costs. However, you are pledging valuable assets as collateral for that loan. A non-collateral loan will allow you to avoid pledged credit risk related to property, however, monthly repayments are likely higher.
Impact to Loan Limit & Approval of the Loan
A loan that has collateral will usually allow a student to borrow larger amounts with relative ease. This is important for student going overseas as the course has a high cost. A non-collateral loan may be limited to eligible borrowing, and specific conditions set on eligibility, which could eliminate loan options for the student.
Interest Rates and Repayment Burden
Choosing the wrong type of loan can mean paying higher interest over the years. A small difference in interest rates can translate into lakhs of rupees across the repayment period. Thus, the right choice ensures manageable EMIs and less financial stress in the future.
Flexibility and Speed of Process
If you are under a strict timeline to provide bank options to your university for final approval, then a non-collateral option loan can help ease the stress without collateral. On the other hand, if your primary goal is a lower cost to benefit you in the long run, then I think a collateral loan is the better decision.
Future Financial Planning
The education loan that is applied for will have an impact on your finances even in the future with regards to loans qualifying; for example, car or home loans, and any credit score associated related to the loan, among others. Thus, identifying the right option can help when optimizing the education loan so you can make the best decision and facilitate better planning of finances in the future.
What is a Collateral Education Loan?
Collateral education loans are also known as secured education loans. They are a type of student loan that requires the borrower to pledge a certain amount of collateral or security to the lender. The pledged collateral might consist of fixed assets (land, house, flat), liquid assets (fixed deposits, LIC or government bonds) or any one of the other accepted securities. The asset pledged becomes a security or guarantee for the bank or financial institution, and it reduces the amount of risk for the lender.
Because the loan is secured or backed by a pledge of collateral, banks and NBFCs (non-banking finance companies) tend to be more confident about repayments. Therefore; banks are able to offer:
- Higher loan amounts (sometimes up to Rs.1.5 crore or even more for overseas education/programs),
- Lower interest rates than non-collateral loans and,
- Flexible repayment tenures (sometimes for ten to fifteen years).
This type of loan is especially popular for students seeking international programs where the total amount of fees, living costs and travel is usually much higher.
Collateral loans come with the responsibility of pledging valuable family assets. If the borrower fails to repay, the lender has the legal right to liquidate the collateral to recover dues. Thus, while collateral loans are often cost-effective and provide higher financial coverage, they involve a greater commitment from the family’s side.
What is a Non-Collateral Education Loan?
A non-collateral education loan (an unsecured education loan) is a type of student loan where the borrower does not have to offer an asset as security. Non-collateral loans are based on these criteria rather than collateral:
- The academic history of the student (previous scores, entrance tests, etc.)
- The admission letter of the university or college with an impressive reputation.
- The course chosen has high employability (STEM, management, medical, etc.).
- The financial profile of the co applicant (income, credit score, repayment ability of parent or guardian).
These loans are popular among students since they do not require offering a property or an asset as security. Therefore, these loans can also be processed quicker than collateral loans. The main characteristics of non-collateral education loans are:
- Generally, the loan amount ranges from Rs.7.5 lakh to Rs.50 lakh- however, a few NBFCs provide loans for more than Rs.50 lakh based on the student’s profile and institution.
- Most of time, non-collateral loans will carry a higher rate of interest compared to a collateral loan- the lender does face a higher risk.
- Since there is no collateral, a lot depends of the creditworthiness and financial strength of the co-borrower of the loan.
- Most repayment tenures range from 10-12 years.
Key Differences Between Collateral and Non-Collateral Education Loans
When deciding a collateral vs. non-collateral education loan, it is critical to understand the differences in eligibility, loan amount, interest rates, and risk. The following are the important factors of difference:
Asset Requirement
- Collateral Loan: The loan is secured against an asset (house, land, fixed deposit, LIC policy, etc.)
- Non-Collateral Loan: No asset is required as security. It is solely based on the student’s and co-borrower’s profile.
Loan Amount Available
- Collateral Loan: Can borrow higher amounts (Rs.1.5 crore or more), limited by the value of the collateral.
- Non-Collateral Loan: Lower amounts available (generally credit limits from Rs.7.5 lakh – Rs.50 lakh but few restrict the amounts even more).
Interest Rates
- Collateral Loan: Usually have lower interest rates based on the risk to the lender being reduced because of the collateral.
- Non-Collateral Loan: Higher interest rates are usually charged on these loans because of the higher risk to the lender.
Approval Process
- Collateral Loan: May take longer process as Property valuation, legal verification/funding condition on legal checks, etc all have to be finalized.
- Non-Collateral Loan: May move quicker since they don’t existing check of the validity of the property etc. to finalize.
Risk Factor
- Collateral Loan: The risk of losing the pledged asset if the loan is unpaid.
- Non-Collateral Loan: No asset at risk, but can cause serious damage to a student’s credit score and the credit score of the co-borrower if the student defaulted on the loan.
Repayment Tenure
- Collateral Loan: Much longer time to repay (15 – 20 years for certain banks).
- Non-Collateral Loan: Shorter time to repay (typically 10-12 years).
Which Students Should Choose Collateral Loans?
Ideal situations and profiles
Which Students Should Choose Non-Collateral Loans?
Whether to opt for a collateral or non-collateral education loan will depend on the student’s financial condition, profile, career aspirations, and study intentions. They each have different objectives, and with the ability know which of the two suits you best can help make being able to fund your education an easier process.
Students Who Should Prefer Collateral Loans
- Students with good financial conditions – If the parents proven assets that can be used as coalition, like property, investment land or fixed deposits, then collateral loans allow students to access larger amounts faster at a lower interest rate.
- Students applying for a top university abroad – It is common for banks to provide education loans being collateralized, when students are aiming for a reputed global institution, Liabilities are considered relatively low risk due to the management potential and as a result collateral loans receive better terms.
- Long-term repayment plans – Since interest rates typically are lower on collateral loans, the total repayment costs will not be as high.
- Students looking for large loan amounts (Rs.40 lakh – Rs.1.5 crore) – It is well suited for expensive studies like an MBBS abroad, an MS in US, or studying an MBA in a top level B-school.
Students Who Should Choose Non-Collateral Loans
- Students without sufficient assets: If you don’t have property or fixed deposits to pledge, a non-collateral loan ensures you still get financial support for higher studies.
- Students aiming for quick approval: Non-collateral loans usually involve faster processing, making them ideal for last-minute admissions or tight visa timelines.
- Students opting for mid-range universities or countries with lower tuition costs: Many NBFCs and private lenders are open to offering unsecured loans for such cases.
- Students confident in their future earning potential: If you are pursuing courses with high employability (like STEM, management, or healthcare), lenders may approve loans based on your academic profile and future earning scope.
Collateral vs. Non-Collateral: Quick Comparison Table
| Feature | Collateral Loan | Non-Collateral Loan |
|---|---|---|
| Security Requirement | Requires tangible security (property, FD, land, etc.) | No security required |
| Loan Amount | Higher (Rs.40 lakhs – Rs.1.5 crore, depending on bank) | Limited (up to Rs.50 lakhs, varies by lender) |
| Interest Rates | Lower (due to reduced risk for lender) | Slightly higher |
| Processing Time | Longer (due to property/legal verification) | Faster approval (minimal documentation) |
| Eligibility | Based on asset value + student profile | Based on academic profile, co-applicant income, future potential |
| Best For | Students applying to top universities, requiring large funds | Students without collateral, needing urgent or smaller loans |
| Risk Factor | Risk of losing pledged asset if loan is unpaid | No risk of losing personal assets |
| Lenders | Mostly Public/Private Sector Banks | NBFCs, Private Banks, International Lenders |
How to Decide the Right Loan for You in 2025?
Making a choice between collateral or non-collateral education loans can be stressful. But at the end, it comes down to your financial background, academic profile, and opportunities. In 2025 also, students have plenty of options with banks, NBFCs, or several international lenders, with different schemes. Thus, it is important for students to build the most appropriate strategy. Here are some guiding criteria:
1. Total Loan Amount Required
- If you need a massive loan amount (Rs.40 lakhs – Rs.1.5 crore), collateral loan is normally the best option, as banks are more popular and willing to lend a larger amounts against conditions of security.
- From small to mid loan amounts (up to Rs.50 lakhs in loan amounts), probably, non-collateral loans would be an enough.
2. Collateral Availability
- If your family has of course property, fixed deposit accounts, or valuable assets, a collateral loan will help you get better rates and better repayment terms.
- If your family has no assets available to pledge for a loan, a non-collateral loan means you are still able to then pursue your study out of the financial hassle.
3. Interest & Repayment burden
- Collateral loans will normally be at lower interest rates and longer tenor, thus making them more affordable and bankable for repayments.
- Non-collateral loans can have slightly more impacts with interest rates, thus students should calculate monthly EMI and their repayment capacity accurately.
4. Time Factor
- If you are in a time crunch (i.e., have been accepted to a program and do not have a lot of time to raise funds), a non-collateral loan will be the quickest option for you.
- Collateral loans will require the lender to look for an evaluation of the property, and additionally do a number of legal checks and paperwork, which could lead to delays in the approval process.
5. University and Course
- With well-established global universities, lenders feel more confident that if it is a non-collateral loan, they are more likely to eventually receive repayment of their loan since the university will produce employable graduates.
- However, if it is an unknown institution or a course with an unknown end return, there may be collateral loan required in order to secure the amount you need.
6. Families risk Tolerance
- When it comes to collateral loans, there is the very real risk of losing your pledged property if you can’t make repayments. A family that is willing take that risk will likely prefer a collateral loan.
- In comparison, non-collateral loans put the risk onto the student and their ability to produce in an academic program and afterwards in their careers. From the perspective of “what they want to lose” it will be less risky to a family to take a non-collateral loan.
7. Support from Co-Applicant/Guarantor
- In collateral loans, the focus is on the value of the security.
- In non-collateral loans, the co-applicant’s income, credit score, and financial stability play a major role.
FAQs: Collateral vs. Non-Collateral Education Loans
Q. What is the main difference between a collateral and a non-collateral education loan?
A. A collateral loan requires security such as property, fixed deposits or any other valuable asset; non-collaterals loans require no assets as security and are approved based on the student’s academic profile, finances of the co-applicant and projected future of the student.
Q. Which banks or institutions provide collateral education loans?
A. Most public sector banks like SBI, Bank of Baroda, Punjab National Bank will agree to give collateral loans especially for higher sums (above Rs.7.5 lakh).
Q. Which lenders provide non-collateral education loans?
A. Many private banks and NBFCs such as ICICI Bank, Axis Bank, HDFC Credila, Avanse, InCred etc., are widely known for non-collateral loans, with flexible conditions.
Q. Which type of loan has a lower interest rate?
A. Lower rates of interest are generally found on collateral loans as compared to non-collateral loans, while the bank has less risk because of the security asset.
Q. Is it easier to get a non-collateral loan than a collateral loan?
A. Non-collateral loans are typically not tedious and easy for students since they do not have to possess a property or an asset, but approval is often dependent on, the student’s academic capability (co-applicant income, chosen university or course of study).
Q. What is the maximum loan amount I can get with collateral and non-collateral loans?
A. Banks can offer loan amounts of Rs.1.5 crore and above with collateral. For non-collateral loans banks typically offer loan amounts capped at Rs.40–50 lakh depending on student’s profile and lender.
Q. Can international students apply for non-collateral loans?
A. Indian students who wish to pursue higher studies abroad, can apply for non-collateral loans with NBFC’s (Non-Banking Financial Companies) and some private banks, subject to eligibility and loan repayment capacity.
Q. Which option is better for studying abroad – collateral or non-collateral?
A. If you possess adequate collateral and want a lower interest rate and a higher loan amount, collateral loans are probably better. However, if you do not have an asset yet possess good academic scores, are admitted to accredited universities, and have a financially stable co-applicant, non-collateral loans would best suit you.