In India, education loans are offered with and without security. In this article, we will understand what happens when education loan is not paid when borrowers goes abroad when he/she has taken loan against security or without security.

(1) When education loan is taken without security

Education loans of 4 Lakhs to 7.5 Lakhs are generally sanctioned without any security. This amount may vary for each loan provider. However in this scenario, parents or any other guardian are made co-borrowers.

(i) When borrower goes abroad and does not repay

If the borrower goes abroad for a job, notice will be issued against the the co-borrower and the money will be recovered from him/her. If this option does not work out, a legal suit will be filed against the co-borrower for recovery. If there is any property in the name of co-borrower then it will be seized and sold through legal proceedings.

(ii) When borrower goes abroad along with co-borrower

If the borrower goes abroad with a co-borrower, a legal suit will be filed against both of them by issuing recovery notices, if the loan repayment is irregular.

If there is any property of the borrower/borrowers in India, the property will be seized and suspended through legal proceedings.

(iii) Arrest warrant will be issued

While sanctioning loans by the banks, cheques are received at a later date. In case the loan account is irregular, the cheque will be submitted by the bank for payment and the warrant for arrest of the borrower will also be issued on refund.

The CIBIL record of both the borrower and the co-borrower will have an adverse effect.

Remember: 7 important points to consider before taking study loan

(2) When education loan is taken with security

If the amount of loan exceeds the limit i.e. the amount is very high which is very common when borrowing for abroad studies, the borrower has to pledge security in the form of bail of a third party or as a house/land etc. Such a loan is considered as a secured loan as the financial status of the mortgaged property or surety is more than the loan amount.

The loan will be recovered by selling the property held as security on fleeing abroad of the borrower/borrowers and/or by taking legal action of recovery against the surety. The amount of surety will be recovered as and when required.

Check out: Hidden charges of education loan

Bottomline

Irrespective of the loan type i.e. secured or unsecured; the loanee and co-borrower both will be at risk especially monetarily. Their CIBIL record will have a negative impact, they will lose their security which can be house/property, etc. And any future credit application will be straightaway rejected. And most importantly, in case of any legal action, they will have to bear the brunt for a long time.

Author Bio:

I am Nikesh Mehta, owner and writer of this site.

I’m an analytics and digital marketing professional and also love writing on finance and technology industry during my spare time. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at nikeshmehta@allonmoney.com or LinkedIn profile.