Plenty of students take education loans to study abroad. Education loans are provided by banks and NBFCs. A bank is a financial institution that offers banking services to people. The main difference between an NBFC and a bank is that NBFCs do not hold a banking license. Non-Banking Financial institutions (NBFCs) cannot accept demand drafts or draw cheques. However, they can grant education loans to students. Hence, there are two options in front of a student. Keep reading to know more about NBFC vs Bank education loans.
Bank VS NBFC Education Loan
Banks are government-authorized financial institutions that receive deposits and grant credit to the public. Banks provide several banking services such as drawing cheques, and demand drafts.
Non-Banking financial institutions (NBFC) are institutions mainly known for providing services such as education loans. NBFCs are regulated by the Reserve Bank of India. They are not banks but perform similar functions.
For example, purchasing, leasing, venture capital finance, and housing finance, among others. NBFCs can only accept term deposits. Deposits repayable on demand cannot be accepted by an NBFC.
Also Read: Education loan insurance: Benefits, calculator, programs, cost, importance
Factors to Consider While Applying for an Education Loan
Here are some factors you need to consider before taking an education loan from an NBFC/Bank.
- Courses- The main difference between NBFC vs bank education loans is the courses covered. Banks usually have an approved list of universities while an NBFC does not. Banks only grant education loans if the institution comes under the list
- Cap for expenses- All educational loan expenses are covered by an NBFC and Banks. However, students must be aware of any cap on expenses. For example, students applying to a course through the management quota need to only pay government-specified tuition fees.
- Amount of loan sanctioned- As per the guidelines to study abroad INR 20 lakhs can be sanctioned. However, banks can generally provide a higher education loan to students wanting to study in premier institutions.
- Interest Rates- When it comes to NBFC vs bank education loans, banks have to follow the Marginal cost of funds-based lending rate (MCLR). However, NBFCs are free to set their own rates.
- Tax Benefits- Students must take loans from an approved institution that comes under Section 80E of the Income Tax Act. It will help the student to avail the income tax benefits.
- Loan Repayment Structure- Several institutions offer a moratorium period according to which students do not have to repay the loan while they are studying. Being aware of the repayment structure can help the student. For example, in some cases, only the repayment of the principal amount is postponed.
Also read: Types of education loan for Indian students
NBFC vs Bank Education Loan Comparison
The main difference between NBFC vs Bank education loans is as follows:
| Comparison Factor | NBFC | Bank |
| Course Flexibility | NBFC offers education loans for a variety of courses to study abroad | Banks provide education loans to students to study in reputed/approved institutions |
| Loan Procurement | NBFCs have simpler terms and loan procurement is easier | Banks have strict rules and offer loans to study courses that have job prospects |
| Loan coverage | Education loans offered by NBFC cover 100% of all the expenses like tuition fees | Banks cover full/partial tuition fees, travel expenses, and other related expenses |
| Processing time | Faster processing of loans | Private banks approve loans faster than public banks |
| Processing fees | The range is between 1% to 2% | The range is between 0.5% to 2% |
| Government Subsidy | Interest rate subsidies are not available | Interest rate subsidies are available for the weaker sections of the society |
| Collateral Security | The collateral security requirement is based on the loan amount | No collateral up to INR 4 lakh. Loans more than INR 7.5 lakh require collateral security |
| Loan Amount | No cap on the loan sanctioned. Loans are granted based on the need of the student/course type | The upper limit is between INR 20 lakh-INR 30 lahks based on course and university |
| Charges | Processing charges, documentation, bounce, swap, and prepayment charges, among others | Processing charges, documentation, bounce, swap, and prepayment charges, among others |
| Interest Rate | Interest rates are offered as floating interest rates by NBFCs | As per the base rate of the bank. Usually between 10%-17% |
| Moratorium Period | 6 months | 6 months- 1 year |
| Repayment | Loans have to be repaid within 7 years | Loans have to be repaid within 7 years |
| Interest Rate Repayment | Can start during the moratorium period | Can start during the moratorium period |
| Customized services | Pre-visa, pre-loan sanctions, bridge loans, fast-track loans, and GRE score-based loans are available | Available as per the need of the borrower. Pre-visa and pre-loan sanctions are also available |
| Pre- Closure charges | Might levy pre-closure charges based on the profile, reason, and tenure left | No charges |
| Concessions for women | Not available | Available |
Major NBFC Education Loan in India
There are several providers of Nbfc vs bank education loans. Here is a list of the top NBFCs in India for education loans.
| NBFC | Base Rate of Interest | Maximum Loan Amount | Tenure |
| HDFC Credila | 11% – 13% | No cap | 12 years |
| Avanse | 11% – 14% | No cap | 15 years |
| InCred | 11.5-15% | 1 Cr | 15 years |
| Auxilo | 12-13.5% | No cap | 10 years |
Also read: Education loan interest calculator: with or without moratorium period
List of NBFC Providing Education Loans in India
Here are the top banks providing education loans to study abroad. The main difference between NBFCs vs bank education loans can be understood after going through the list.
| Bank Name | Interest Rate | Maximum Loan Amount | Repayment |
| Syndicate Bank | 9.55% – 13.25% | INR 2 crores | 15 years + Moratorium |
| Vijaya Bank | Multiple | INR 20 lakh | 15 years |
| ICICI Bank | 10.50%- 10.75% | INR 20 lakh | – |
| IDBI | 9 – 12 % | INR 20 lakh | 15 years |
| Bank of Baroda | 8 – 10 % | INR 80 lakh (for medical and aviation) | 10-15 years |
| Allahabad Bank | 7 – 11 % | INR 20 lakh | 10-15 years |
| Canara Bank | 7 – 10 % | INR 40 lakh + | 10 – 15 years |
| HDFC Bank | 9 – 14 % | INR 20 Lakhs + | 15 years |
FAQs
Ans. An NBFC cannot accept deposits that are repayable on demand while a bank can. There are many differences between NBFC vs bank education loans. Banks usually have a list of approved educational institutions and provide education loans for the same. An NBFC is more flexible. Students just have to make sure that the course that they are applying for is provided by the university.
Ans. Avanse Financial Services, InCred, Auxilo, and Prodigy Finance are some of the best NBFCs for education loans to study abroad.
Ans. NBFCs are preferred over banks as they provide course flexibility and provide interest rates suitable for a borrower.
NBFC vs Bank education loan is a choice that students have to make while applying for an education loan. An NBFC offers course flexibility, attractive interest rates, and a maximum amount of education loans. On the other hand, banks provide the best education loans to study in reputed universities.
They also consider the job prospects of the students before granting the loan. Banks also provide education loans for a longer moratorium period of up to 1 year. Some of the banks you can rely on are Syndicate Bank, ICICI Bank, and Bank of Baroda.
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