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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.

At the outset, education loans have to be chosen according to the type of course the student has enrolled for either within India or abroad. Funding can also be done through scholarships. The course that the student has got admitted in has to be in the approved list of courses for education loans. Financial institutions will offers loans only to courses present in the approved list. The other factors that an applicant has to consider is the loan amount sanctioned, loan margin requirements, processing time, extra charges, holiday period and also check if any special schemes are available. The most important factor is probably the interest rate criteria that every applicant has to focus on while availing an education loan. Interest rates vary from institution to institution and also based on market conditions. Another aspect that students have to make sure is the coverage of the education loan. Most education loans cover all types of fees related to the course along with travel and sometimes also provide insurance cover for the student. Depending on what the course study duration demands, students have to pick an education loan perfectly suited for them and also falling within the financial brackets determined by their parents.

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. For loans below Rs. 4 lakhs, no security is required. For loans between Rs. 4 lakhs and Rs. 7.5 lakhs, third party guarantee. Loans above Rs. 7.5 lakhs require tangible collateral security. Loans are approved based on the security provided by the customer. 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.
Documents required
  • Admission Letter
  • Loan Application Form
  • 2 passport photographs
  • Study Cost Statement
  • PAN Card
  • Aadhaar Card
  • ID Proofs
  • Residence Proofs
  • Bank account statement for last six months
  • Income Tax Returns Statements
  • Statement of liabilities and assets
  • Proof of income
  • ID Proofs
  • Residence Proofs
  • Signature Proofs
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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Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.

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