- Does it matter where you should apply for an education loan - a bank or an NBFC?
- Yes, it does! There are differences in their operational methodologies which you can know in this post
As higher education is expensive, it becomes very difficult for parents to afford the funding. That’s where education loans come handy. These loans can be borrowed from either a bank or an NBFC to finance education expenses. But the question is which is better for the education loan – a bank or a non-banking finance company (NBFC). There are top lenders like State Bank of India, Bank of Baroda, Avanse, Incred – which offer multiple loan schemes for students to pursue higher studies in India or abroad. To make it easy for you, read the post and know which is a better alternative for your higher education.
Banks generally offer you education loans for reputed universities institutes in India and overseas. But NBFCs can provide education loans for any educational course irrespective of their job prospects. You may also need to check the educational institution’s name on the approved list of banks. If it isn’t on the list, you won’t get the loan. You don’t normally face such situations when you borrow a loan from a non-banking financial institute. Having said that, getting admitted to an institute and for a course that does not yield you a job, later on, will not help you one bit. So, look for admission to job-oriented courses and in the right institution.
Banks leave a margin of 5%-15% over your loan amount which means the education loan will meet 85%-95% of your requirements. The loan can help you pay for expenses like tuition fees, exam fees, travel fees, accommodation fees, book purchases, etc. You can either ask your parents to pay the margin money or take help from a scholarship or assistantship program. Whereas, NBFCs may not levy any margin to your borrowed amount and give 100% of the total educational expenses. All your expenses during the course period would be managed with the loan amount.
A bank approves and sanctions the loan based on the applicant’s credit history and after checking carefully as to where the student is applying. It sanctions the loan only on finding that the institution is a recognized one. An NBFC doesn’t focus on these factors and sanctions loans at a much faster rate regardless of the course type and the college. But NBFCs may charge a high processing fee for the education loan compared to banks.
The rate of interest on your education loan is quite affordable and provides you tax benefits based on your annual income. But who offers you a lower interest rate? As you know the bank would provide you the education loan based on its lending rate. In contrast, the NBFC will set the interest rate based on the loan amount and user credit capacity. So there are high chances of getting a lower interest rate on a bank’s education loan.
Security for the Loan
You need to provide a tangible asset to the bank if your loan amount is above INR 7,50,000. In case you borrow a loan from the NBFC then there is no limit to your loan and the collateral need would be based on the credit score and repayment capacity of the individual. So if you are confident of borrowing a high loan amount without any security mortgage, you should take a loan from an NBFC. Otherwise, the bank is a good option.
You can get a loan up to INR 1.5 crore if you borrow an education loan from a bank. Whereas, the NBFC doesn’t have any limit to your loan amount. The loan would be based on the student’s academic performance and the income or credit history of parents. So, apply for the loan by comparing both the NBFC or bank offer and choose the one which meets your requirements.
Bank provides you a moratorium period of 6 to 12 months after your course gets completed. In this period, you are not required to pay the loan EMIs. However, you are allowed to service the interest payment during the moratorium period. If you get a job with the institute or college placement service then the moratorium would be of 6 months else it will be up to 1 year. An NBFC can provide you a shorter duration to find a job that doesn’t exceed 6 months.
You get specialized services if you borrow a loan from a private sector bank. And an NBFC will give you services like doorstep services, quick visa approval for overseas studies, 24X7 online customer service, etc.
Now, choose the one which sounds good as per your financial needs and future prospects.