Things to Check Before Taking a Loan Against Property for Education

Education has become highly expensive, especially private education. If your child dreams of pursuing a course in one of the top colleges of the country or aspires to get a degree from a foreign university, in all likelihood, you will have to seek financial assistance to give wings to their dream. Though the majority of students and parents opt for education loans, these loans have certain shortcomings. To start with, education loans give borrowers access to a small amount of money. Further, these loans have a short tenor of 5 to 7 years, which makes repaying them a burden.

If you need access to a substantial amount of money along with a long tenor and low interest rates on the loan value, opting for a customised Loan Against Property for education is a better option.  

A Loan Against Property is a secured mode of financing under which a borrower pledges their property as collateral in return for loan money. The presence of security or collateral makes loans against property a minimal risk affair for lenders. Lenders, thus, sanction these loans at remarkably low interest rates and for a long tenor stretching up to 18 years.  

However, if you are taking an education Loan Against Property, you must be mindful of a few things. Let us look at things to know before taking an education Loan Against Property.  

Things to Keep in Mind When Taking a Loan Against Property

Make Sure Your Lender Is Offering You the Right Value for Your Property

Lenders sanction anywhere between 65% and 75% of a property's value as loan. The value of the property is assessed by professionals who consider various factors, such as the property's location, its age, amenities present, etc. If you are planning to avail of a Loan Against Property, hire a professional to assess the value of your property before beginning the education Loan Against Property application process. This way, you will know that your lender is offering you the right loan value against your property.  

Figure Out What You Need and Borrow Just That

If you are taking an education Loan Against Property to finance the education of your child, one of the first things you must do is sit down and figure out how much money you will need. Include tuition cost, cost of living in another city, flight tickets if your child is planning to pursue a degree outside India, etc. Doing this exercise will help you figure out exactly how much money you need. Once you have the figure, remember to borrow just that.  

Under a Loan Against Property, one can avail of up to 65% to 75% of a property's value as a loan. If your property is worth Rs.2 Crore, your lender will give you up to Rs.1.5 Crore as loan. However, repaying such a hefty amount can become burdensome. So, avail of what you need and what you can easily repay.   

Negotiate for Good Interest Rates

Loans against property are secured loans and therefore, interest rates on these loans are already quite low. However, make sure to talk to as many lenders as possible - this will help you get the lowest interest rate possible, which in turn, will make paying off the loan easier. 

Opt for Right Tenor

Borrowers get anywhere up to 18 years to repay an education Loan Against Property. However, when it comes to loan tenor, borrowers should aim for affordability while also trying to close the loan as early as possible.  

If you can afford to pay big EMIs, opt for a short tenor, close the loan early and save on the total interest outgo. However, if affordability is an issue, opt for a long tenor and keep your EMIs on the lower side. You should change your tenor to make sure you can afford to pay your EMIs on time as by and large, not defaulting on loan payment is more important than closing the loan early.   

Also Read: Short Tenure vs. Long Loan Against Property Tenure - Which Is Better? 

Read Your Preferred Lender's Eligibility Criteria Before Beginning the Loan Application Process

Before initiating the loan application process, go to your chosen lender's website and read carefully the eligibility criteria. Meeting your lender's eligibility criteria is crucial to ensure approval.  

Borrowers should also know that every time they face rejection, their credit rating takes a hit. Further, every rejection leads to a hard enquiry. Too many hard enquiries ruin a person's credit score. Thus, when borrowers receive rejection on an education Loan Against Property application, they must not make any loan application for at least a few months.  

Borrowers must also check the kind of property their lender accepts for education loans against property. For instance, some lenders only accept residential and commercial properties and do not accept plots or agricultural land. Having information like this is crucial. The good thing is all this information is available on all lenders' websites. So, make sure to check eligibility and documentation requirements before initiating the Loan Against Property application process. 

Also Read: List of Documents Needed to Apply for a Loan Against Property 

Read the Fine Print

Lastly, you are taking a loan to make sure your child gets the education they deserve. So, make sure to check everything. This is crucial to ensure you are not making a mistake. Read the loan agreement carefully and make sure you understand everything. If you don't understand the financial jargon, hire a lawyer who can explain everything to you. Also, check the document carefully for hidden charges and fees. 

Conclusion

Education has become expensive. If you need financial assistance to pay for your child's education, take a Loan Against Property. However, keep the above-mentioned things in mind while taking a Loan Against Property for education. This will help safeguard your and your child's future.