What is the Role of Encumbrance Certificates into Education Loans

In today’s world, education has become a vital part of an individual’s life. It is widely understood that investing in education can bring great returns to one’s career and lifestyle. However, the cost of education has increased significantly over the years, making it difficult for many students to finance their education themselves.

Education loans have become the go-to solution for many students who require financial assistance to fund their education expenses. One of the most important factors that come into play while applying for an education loan is the Encumbrance Certificate(EC).

What is an Encumbrance Certificate?

An Encumbrance Certificate (EC) can be defined as a legal document that is used to certify that a property is free from all legal and monetary liabilities such as mortgages, loans, and debts. An EC provides details on all the registered transactions related to the property over a specified period of time. This document is essential for buying or selling a property and is usually obtained from the sub-registrar’s office.

However, the importance of an EC is not limited to buying or selling a property. It plays an integral role in availing education loans as well.

Role of Encumbrance Certificates into Education Loans

Education loans against property are majorly granted against collateral such as proeprty or land security. This collateral security could be any immovable property, such as a house or a plot of land, or even liquid assets such as fixed deposits or bonds. The bank requires this collateral security to ensure that the borrower has a source of repayment if they default on the loan.

When an individual applies for an education loan, the bank requests for an EC for the collateral security provided. The reason for this is to check if there are any existing debts, liabilities, or mortgage on the property or assets to be mortgaged for the loan.

An EC is an essential document for the bank to verify the authenticity and legality of the collateral security pledged by the borrower. Any existing liens or encumbrances on the collateral security could negatively impact the approval of the loan application.

The bank will check the authenticity of the property or asset to be mortgaged by reviewing the details provided in the EC. This is done to ensure that the property or asset is not already being used as collateral for another loan or mortgage.

In the absence of an EC, the bank would not be able to accurately verify the authenticity of the collateral security, which could lead to major complications and difficulties in approving the loan. It is, therefore, crucial for a borrower to obtain an EC for their collateral security before submitting the loan application to the bank.

The EC provides a summary of all the registered transactions related to the property or assets. If there are any encumbrances or mortgages registered, the bank will have to assess the value of the property or assets accordingly. This will affect the loan amount that can be sanctioned to the borrower.

It is hence advisable to obtain an EC for the collateral security before applying for an education loan. This will enable the borrower to check the authenticity of the property or assets, understand the loan amount that can be sanctioned and avoid any unnecessary complications during the loan application process.

Conclusion

Obtaining an Encumbrance Certificate is an essential part of the education loan application process. The authenticity and legality of the collateral security pledged is verified using the EC, which could impact the approval of the loan application.

It is important for a borrower to obtain an EC for the collateral security and check if there are any encumbrances or mortgages registered. This will enable them to assess the value of the collateral security and understand the loan amount that can be sanctioned.

In conclusion, an EC plays a vital role in the approval of education loans. It is a document that provides a summary of all the registered transactions related to the collateral security, and is used to verify the authenticity and legality of the property or assets mortgaged for the loan. Obtaining an EC should be considered a crucial step in the education loan application process. Read more blogs on our website.

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