What Collateral Actually Means HereA collateral loan requires you to pledge an asset to the lender. Because the lender's risk drops significantly when an asset backs the loan, collateral loans tend to come with lower interest rates. Running the numbers through an emi calculator education loan tool before committing to any offer is worth the ten minutes it takes. This applies to both collateral and non-collateral loans, and there's no upper limit on the deduction amount. If pledging assets isn't feasible or feels too risky, non-collateral loans are a legitimate alternative.