Whom to Consult for an Education Loan: Bank or NBFC?
Education loans have become a necessity in today’s world with more and more students opting to study abroad.
Top banks and Non-Banking Finance Companies (NBFC) offer a plethora of financing schemes for aspiring students pursuing their studies either in India or abroad. Choosing the right type of education loan is an arduous task. A lot of factors actually play a key role in determining the right education loan for a student.
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Factors You Should Consider While Applying for an Education Loan
Courses Covered:
Banks, generally have an approved list of courses and colleges for which they can sanction loans. NBFCs on the other hand, often are seen to be more flexible while sanctioning a loan. You need to check if the course you are applying for, is covered by the institution in which you are applying for a loan.
Any Cap for Expenses:
Almost all the common expenses like fees are covered by both, banks and NBFCs. However, the institution may have a cap on other expenses. For example, if you have applied for a seat under the management quota, the institution would cover the Government prescribed tuition fees, not more than that. The accommodation, as well, depends on student's choice, in such cases reasonable charges are considered. Further, other expenses like study tours and stationery may be restricted to 20% of the tuition fees.
Amount of Loan Sanctioned:
According to the guidelines, a maximum of Rs.10 lakh loan can be approved for studies in India and Rs. 20 lakhs for outside India. However, the banks can grant a bigger amount depending on the institution and the course. Top-class institutes are more likely to get higher amounts sanctioned at a lower rate of interest. Try to pick an institute that has good grades to make the loan process smooth.
Tax Benefits:
You need to get the loan from the approved entity to avail of tax benefits under Section 80 E of the Income Tax Act. So, prior to taking a loan, check with the institution if you can avail the tax benefit. Though there won't be benefits on principal repayment, however, you can avail deduction benefit on interest for up to eight years.
Loan Repayment Structure:
Some institutions offer a complete moratorium while the student is studying, not even the simple interest requires to be paid. And in some cases, only the repayment of the principal amount is postponed. Check the repayment structure before applying for a loan. Try to get an estimated EMI amount which you will have to pay post the course ends. Ideally, the EMI amount should be smaller than one-quarter of your net salary.
With both NBFCs and banks offering education loans, here are a few features listed, which will help borrowers decide whether to avail a loan from a bank or a Non-Banking Finance Companies (NBFC). Irrespective of the type of lender, i.e., private or public sector, most banks offer similar kinds of education loans with major differences only in interest rates.
So, what does a customer choose, a bank or a NBFC to finance his education abroad or within India? The best way to pick the best choice would be to weigh in the pros and cons of both with respect to offerings and then procure the right loan.
Comparison Table - Banks vs Non-Banking Finance Companies (NBFC)
Comparison | Banks - Public and Private Sector | Non-Banking Finance Companies (NBFC) |
Course Flexibility | Banks offer education loans to approved/reputed universities in India and abroad. The category of courses covered range from graduate, post-graduate, diploma, etc., mainly in the non-vocational streams. Some nationalised banks offer education loans for vocational courses on a case-by-case basis. | Non-Banking Finance Companies are comparatively relaxed on the course types and offer education loans to a wider selection of courses across the globe. |
Loan Coverage | Education loans sanctioned by banks cover the tuition fees, travel expenses, lab fees and exam fees, lodging fees, cost of books and equipment, library fees, caution deposit and all other related costs. | Education loans sanctioned by NBFCs cover 100% of the tuition fees, travel expenses, lab fees and exam fees, lodging fees, cost of books and equipment, library fees, caution deposit and all other related costs. |
Loan Procurement | Banks have more stringent rules and regulations and mostly offer loans for courses that promise job prospects for the borrower. | When compared to banks, NBFCs have simpler terms and loan procurement is easier for offbeat courses chosen by the student. |
Processing Time | Private banks approve loans faster when compared to public sector banks. Public sector banks sanction loans faster based on the relationship that the customer has with the bank. Banks give quick approvals mainly for recognized courses. | Non-Banking Finance Companies are faster in sanctioning loans irrespective of the type of course. |
Processing Fees | The processing fees charged by banks range between 0.5% to up to 2%. | The processing fees charged by Non-Banking Finance Companies range between 1% to up to 2%. |
Government Subsidy | All banks offer interest rate subsidy for the weaker section of the society. This subsidy will be applicable during the moratorium period. | Interest rate subsidies are not available with Non-Banking Finance Companies. |
Security Collateral | Banks require security collateral based on the loans amount.
| Non-Banking Finance Companies ask for security based on the loan amount availed and also based on the credit history of the borrower. |
Loan Amount | All public and private sector banks impose an upper limit on the loan amount ranging between Rs. 20 lakhs and Rs. 30 lakhs, based on the course and university selected. Depending on the requirement of the borrower, the loan amount sanctioned varies with each bank. All banks impose an upper limit on the loan amount. | NBFCs do not have a cap on the loan amount sanctioned and structure loans based on the need of the student and the type of course enrolled for. |
Charges | Borrowers availing education loans from banks have to pay charges like processing charges, documentation charges, bounce charges, swap charges, prepayment charges, late penalty charges, etc. | Borrowers availing education loans from NBFCs have to pay charges like processing charges, documentation charges, bounce charges, swap charges, prepayment charges, late penalty charges, etc. |
Interest Rates | Interest rates are calculated by banks according to the current base rate of the bank. Education loan interest rates range roughly from 10% to 17%, depending on the lender. | Interest rates are calculated by banks according to the current base rate of the bank. Education loan interest rates are offered as floating interest rates by Non-Banking Finance Companies |
Moratorium Period | Private and public sector banks give a moratorium period or holiday period ranging from 6 months to up to 1 year. | Non-Banking Finance Companies give a moratorium period or holiday period of 6 months. |
Repayments | Repayments for education loans got from banks can be done within 7 years. The interest repayment can start during the moratorium period and the principal repayment can be done as monthly installments after the borrower has got a job. | Repayments for education loans got from Non-Banking Finance Companies can be done within 7 years. The interest repayment can start during the moratorium period and the principal repayment can be done as monthly installments after the borrower has got a job. |
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Customised Services | Some private sector banks offer customised loan packages according to the needs of the borrower along with doorstep services. Additionally, some lenders also give pre-visa or pre-admission loan sanctions. | NBFCs offers special services like pre-visa or pre-admission loan sanctions, fast-track loans, bridge loans, GRE score based loans and certificate of availability of funds. |
Pre-closure Charges | Most banks do not levy any pre-closure charges for education loans according to The Reserve Bank of India norms. | Non-Banking Finance Companies might levy pre-closure charges based on the reason for closure, tenure left and the borrower’s profile. |
Concessions for Women | Most public sector banks offer concessions on interest rates for women borrowers. | This feature might not be available with Non-Banking Finance Companies. |
List of Banks Providing Education Loans in India
- Andhra Bank
- Allahabad Bank
- Axis Bank
- Bank of Baroda
- Bank of India
- Bank of Maharashtra
- Canara Bank
- Central Bank of India
- City Union Bank
- Corporation Bank
- Dena Bank
- Dhanlaxmi Bank
- Federal Bank
- HDFC Bank
- Indian Bank
- Indian Overseas Bank
- IDBI Bank
- Jammu And Kashmir Bank
- Karnataka Bank
- Karur Vysya Bank
- Lakshmi Vilas Bank
- Oriental Bank of Commerce
- Punjab & Sind Bank
- Punjab National Bank
- Saraswat Bank
- South Indian Bank
- SBBJ Bank
- State Bank of Hyderabad
- State Bank of India
- State Bank of Patiala
- State Bank of Travancore
- Syndicate Bank
- Tamilnad Mercantile Bank
- UCO Bank
- Union Bank of India
- United Bank of India
- Vijaya Bank
List of Non-Banking Finance Companies providing education loans in India -
- Avanse Education Loan
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