Education Loan Vs Loan Against Property

Education loan by banks is provided generally against collateral in the form of property that could be residential or commercial. However, although both appear to be the loan against property the difference is in the end purpose of the loan that changes the way the financial institutions perceives the loan

1. Education loan is future looking where in we are looking at the future earning a potential of the student to ascertain feasibility and risk parameters of the loan. The risk on the repayment is dependent on the academic profile of the student. The better school or more in industry demand the student is going the better his terms of the loan. The loan officer usually while calculating FOIR ( Fixed income obligation ratio) considers the parents plus students income. So with low parents income, the financial institutions are ready to lend to the student.

2. Provisions under section 80E entail that the parent can deduct the interest component repaid from his IT return. This is not possible in loan against property. The RBI and government is incentivizing higher education

3. Education loan falls under priority sector lending which cumulatively has to be 40% of the entire loan portfolio. This communicates to very favorable terms for the education loan as banks are keen to lend in priority sector to fulfill the targets.

4. In loan against property, the interest needs to be repaid as soon as you draw down the loan. In education loan, most financial institutions provide the benefit of partial or no interest payment till the student has found a job. This is a very flexible provision provided by a financial institution which provides no extra burden to parents while taking a loan.