Education Loan from NBFC vs. Banks

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Oct

0 Comments Oct. 26, 2023

Moving abroad for higher education opens up numerous opportunities. In recent times, it has been noticed that many students from India are heading towards foreign universities to boost their careers. Students who want to shape their future to achieve their desired career goals deeply understand the value of taking education loans.

By now, students have a variety of options for taking out an education loan. Some available options for taking foreign education loan are: public banks, private banks, and NBFCs (non-banking financial corporations). Here are some important pointers that help students understand the process and criteria for taking loans from both NBFCs and banks.

Many students find it safe and secure to apply for a study abroad loan from a public sector bank. Usually, public-sector banks offer collateral-based education loans. On the other hand, NBFCs (non-financial banking corporations) are private institutions that are becoming popular among students. NBFC provides a variety of loans, including education loans.

NBFCs have successfully redefined the methods of lending loans to students. NBFCs have emerged as a young-age innovation, challenging banks' traditional norms in offering education loans to students. They have established themselves as a key player in assisting students in obtaining educational opportunities abroad.

Government and private banks, as well as NBFCs, offer flexibility in abroad education loan schemes for students who wish to study abroad.

Factors to keep in mind while applying for an education loan abroad:

There are certain factors that are to be kept in mind while applying for an education loan to study abroad. These elements include the covered courses, whether the loan amount covers all necessary expenses or not, 100% financing of the loan amount, tax law relaxation, and repayment schedule.

Courses Covered: It is always important for students planning to take an education loan to check first for the course and university. Banks have a limited list of colleges and courses that they prefer the most. On the other hand, NBFC offers loans to a wide range of courses and countries in comparison to banks.
All expenses must be covered. The loan amount must not be limited to only tuition fees. Students must ensure that their financing institution covers travel, living, and other expenses imposed on them by foreign universities, such as library fees, tuition fees, and stationery fees.
Tax benefit: Students must always check whether tax benefits are associated with their student loan to study abroad or not. Always check with the lender about such tax benefits and if you can avail of them.
Loan Repayment: Banks and NBFCs provide students with flexible loan repayment terms, but the structure varies. A student must check with their financing institutions about the structure of their loan repayment and ensure that it is satisfactory for them.

Important features have been listed below that will help students have a precise understanding of whether to take the education loan from banks or NBFCs. In terms of education loan procedures, NBFCs continue to differ from banks.

Comparison	Banks	NBFC
Rate of Interest	The interest rate on an education loan ranges between 8% and 15% when calculated using the bank's base rate.	Interest rates for NBFCs fluctuate because they are mostly private lenders. NBFCs charge a rate of interest between 11% and 15%.
Course Flexibility	Indian banks offer education loans for the most reputed and job-oriented courses abroad.	NBFCs are comparatively relaxed when it comes to courses, and they cover a wide range of courses in comparison to banks. Education loans are available for a wider selection of courses across the world.
All expenses covered	Bank education loans cover university fees in addition to these additional charges, such as stationery, tuition, lab fees, and travel expenses. However, it has been observed that bank loans do not cover 100% of the actual amount for education.	The NBFC provides the applicant with the full amount of the education loan to study abroad. The education loan that NBFCs are offering covers all major and minor costs, including college fees, living expenses, and travel expenses.
Collateral and Non-Collateral loans	Public banks offer collateral-based loans at low interest rates, whereas private banks stay flexible in terms of both collateral and non-collateral loans.	NBFCs give students the option of both collateral and non-collateral loans.
Processing Time	When compared to public banks, private banks process loans more quickly.	NBFCs take less time to process the loan in comparison to banks, so there is more scope for students with average profiles.
Processing Fees	Banks charge between 0.5% and 2% on loan amounts.	The processing fees charged by NBFCs range between 1% and 3% of the total loan amount.
Relaxation for students	Some banks still have the provision of giving concessions to female applicants for their education loans in terms of interest rates and processing fees.	NBFCs remain neutral for both male and female students. However, concessions are also based on the case and profile of the applicant.
Sanction Time	Banks usually take 10 to 12 days to sanction the loan.	NBFCs are quick to sanction loans; once the application is approved, it usually takes them 3-5 days to sanction the loan.
Loan Insurance	Loan insurance is mandatory to be purchased in case of the death or terminal illness of the applicant; the burden of repaying the loan will not fall on the co-applicant.	NBFCs offer loan insurance, even when offering unsecured loans, to safeguard against potential losses in the event of the applicant's death or terminal illness.
Repayment	Bank loan repayment terms range from 7 to 8 years; interest on education loans begins with the moratorium period, and the remainder of the loan amount can be paid after the course is completed. Banks also give students an extra 3 or 6 month period to pay off their debt. Banks providing secured loans provide a longer duration of 10 to 15 years for loan repayment. Repayment duration also depends on a case-by-case basis.	The repayment period for NBFC education loans ranges from 7 to 10 years. The interest repayment will start during the moratorium period, and the rest of the principal amount can be paid in an easy monthly installment. Extra time after course completion will be given to candidates for repayment of their loan.