RBI Education Loan Scheme: Rs 7.5 Lakh Without Collateral Guidelines

Indian students pursuing higher education often require substantial funding, which can be obtained through an Education Loan. In India, RBI guidelines allow banks/lenders to provide higher study loans of up to ₹7.5 Lakh without requiring collateral. It is important to understand the distinction between the role of the RBI and the actual loan terms and conditions offered to borrowers. Let us understand this in greater detail!

RBI Guidelines and Lender Practices for Education Loans

The Reserve Bank does not provide loans directly; it regulates financial institutions that offer education loans. Through these regulatory guidelines, financial institutions provide students with clear information and set guidelines to manage risk and resolve borrower grievances.

The Model Education Loan Scheme is used by banks or lenders as a reference framework for designing Education Loan products. It contains key elements such as:

• The maximum and minimum loan amounts available through education loans

• The moratorium period

• The repayment structure

• Collateral requirements

Banks and other regulated lending institutions can adapt these guidelines based on internal credit policies and the borrower’s profile.

Also Read: How to Get an Education Loan Without Collateral or Co-Applicant

Guidelines for ₹7.5 Lakh Education Loan Without Collateral

With this regulatory context in mind, let us examine how the ₹7.5 Lakh loan without a collateral limit works.

Maximum Loan Amount Without Collateral

Under the RBI Education Loan framework, lenders can offer collateral-free loans up to a specified amount. No collateral is needed for loans of up to ₹4 Lakh; parents/guardians must be co-borrowers. For loans between ₹4 Lakh and ₹7.5 Lakh, a third-party guarantor (relative or friend) is required, along with parents as co-borrowers. However, no collateral is required for this amount.

Collateral Requirements Beyond ₹7.5 Lakh Loan Amount

When a borrower requests more than ₹7.5 Lakh in an Education Loan, lenders generally require collateral to be secured against it. Pledging collateral turns an Education Loan into a secured loan. The approved loan amount beyond the unsecured limit depends on the market value of the collateral and bank policies.

Financial Institutions Providing Education Loans as per RBI Guidelines

Education loans are offered by multiple types of financial institutions, giving students several options to fund their higher studies.

Traditional Banks and Scheduled Banks

Traditional banks and scheduled banks are the primary financial institutions through which borrowers receive loans. Both types of banks comply with the collateral guidelines when it comes to providing loans for education. Bank loans continue to remain the primary source of financing for educational expenses in India.

Non-Banking Financial Companies

NBFCs can also issue an Education Loan; however, the conditions on interest rates and collateral may vary from NBFCs to traditional banks. It is important that borrowers thoroughly examine the offerings of NBFCs before moving forward with the loans.

Multiple Lenders and Borrower Choice

Most borrowers can check for study loan offers from multiple lenders so they can compare interest rates, the amount of the loan, and collateral requirements. This allows borrowers to access funds under the best possible terms and make informed financial decisions based on their findings.

How to Apply for an Education Loan Under RBI Guidelines

Applying for an Education Loan under RBI guidelines is now a simple and secure process for students.

1. Select a Lender: Compare banks and NBFCs for interest rates, repayment terms, collateral requirements and eligibility criteria.

2. Submit Application: Apply online via portals like PM VidyaLakshmi for government schemes or offline at the lender's branch for an Education Loan.

3. Provide Documents: Include admission proof, academic records, ID/address proof, and financial documents of co-borrowers.

4. Verification and Sanction: Lender verifies eligibility and issues a sanction letter with the loan amount, interest rate, and repayment schedule.

5. Loan Disbursement and Repayment: Funds are released per the institute’s fee schedule; repayment starts after the moratorium period.

To Conclude

RBI broad guidelines assist lenders in providing safe Educational Loans through a well-organised framework of regulations. The RBI establishes clear guidelines for lenders to finance academics under their lending policies, even though it does not provide direct loans. Borrowers can get funding and reduce the financial burden of pursuing higher education by being aware of the loan structure.

Check out Poonawalla Fincorp’s hassle-free Education Loan for higher study at your dream university in India or abroad. Apply now and enjoy benefits like competitive interest rates and flexible repayment options with funds that cover all your education-related expenses.

Read Also: From Stress to Strategy: Master Your Education Loan with a Calculator

FAQs

What is the interest rate of an RBI loan?

Interest rates for education loans are not set by the RBI. Banks determine rates according to the borrower's credit history, the size of the loan, and the state of the market.

Which is an example of a collateral loan?

An example of a collateral loan is an Education Loan secured by real estate or other financial assets.

How does a collateral loan work?

Because an asset is pledged, collateralised loans lower the lender's risk. However, if the borrower defaults, the pledged asset might be withdrawn.

What can be the collateral requirements of any lender?

Collateral requirements vary by lender and loan amount. Common acceptable collaterals include real estate, fixed deposits, and other financial securities.

What are the 5 C’s of collateral?

The 5 C’s are Character, Capacity, Capital, Collateral, and Conditions, which lenders evaluate to assess the creditworthiness of a borrower.