Which Option is Better for Education Loan: NBFC vs Bank? Here’s the Answer!

nbfc vs bank education loan
Home » Education Loan » Which Option is Better for Education Loan: NBFC vs Bank? Here’s the Answer!

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 FactorNBFCBank
Course Flexibility NBFC offers education loans for a variety of courses to study abroadBanks provide education loans to students to study in reputed/approved institutions 
Loan ProcurementNBFCs 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 feesBanks cover full/partial tuition fees, travel expenses, and other related expenses 
Processing timeFaster processing of loansPrivate banks approve loans faster than public banks
Processing feesThe range is between 1% to 2%The range is between 0.5% to 2%
Government SubsidyInterest rate subsidies are not available Interest rate subsidies are available for the weaker sections of the society
Collateral SecurityThe 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 AmountNo cap on the loan sanctioned. Loans are granted based on the need of the student/course typeThe 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 othersProcessing charges, documentation, bounce, swap, and prepayment charges, among others
Interest RateInterest rates are offered as floating interest rates by NBFCsAs per the base rate of the bank. Usually between 10%-17%
Moratorium Period6 months6 months- 1 year
Repayment Loans have to be repaid within 7 yearsLoans have to be repaid within 7 years
Interest Rate RepaymentCan start during the moratorium periodCan start during the moratorium period
Customized servicesPre-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 womenNot 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.

NBFCBase Rate of Interest Maximum Loan AmountTenure 
HDFC Credila11% – 13%No cap12 years
Avanse11% – 14%No cap15 years
InCred11.5-15%1 Cr15 years
Auxilo12-13.5%No cap10 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 NameInterest Rate Maximum Loan AmountRepayment
Syndicate Bank 9.55% – 13.25%INR 2 crores15 years + Moratorium 
Vijaya Bank MultipleINR 20 lakh15 years
ICICI Bank 10.50%- 10.75%INR 20 lakh
IDBI 9 – 12 %INR 20 lakh15 years
Bank of Baroda8 – 10 %INR 80 lakh (for medical and aviation)10-15 years
Allahabad Bank 7 – 11 %INR 20 lakh10-15 years
Canara Bank 7 – 10 %INR 40 lakh +10 – 15 years
HDFC Bank9 – 14 %INR 20 Lakhs +15 years

FAQs

Q1. What is the difference between NBFC and banks for education loans?

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.

Q2. Which NBFC is the best for education loans?

Ans. Avanse Financial Services, InCred, Auxilo, and Prodigy Finance are some of the best NBFCs for education loans to study abroad.

Q3. Why do people prefer NBFC over banks?

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. 

This was all about NBFCs vs bank education loans. To discover more articles like this one visit Fly.Finance

About Blessy George

Blessy George is a seasoned finance specialist who specialises in school financing. With over two years of experience, Blessy has polished her abilities in negotiating the complexities of the education loan procedure and has become an expert at problem-solving in this arena. Her extensive knowledge of financial systems and lending practices, together with her rigorous attention to detail, has earned her the trust of students and parents seeking educational financial help. Blessy's passion for empowering individuals through education drives her dedication to developing customised solutions and ensuring that aspiring students can attain their academic goals.

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