Differences Between Banks and NBFCs For Education Loan

Differences Between Banks and NBFCs For Education Loan Overview

Education loan refers to a loan borrowed from public or private sources of finance to fund education-related expenses. Since higher education becomes more expensive every year, in such a scenario it is very difficult for parents to afford higher education for their children. Therefore, many of them have to resort to education loan in the form of financial aid that covers tuition fees and other expenses related to their education.

Comparing and selecting these schemes is a daunting task, which is determined based on various factors such as: syllabus, tuition fees, interest, ability to repay, need for collateral, etc.


Education loans offered by NBFCs and banks differ in the following ways:


  • Course flexibility: Banks mostly offer education loans to prestigious universities in India and abroad also. The category of courses covered varies depending on the diploma, post-graduate and graduate courses. NBFCs provide educational loans for a wider category of non-formal courses in various universities. Although, interest rates are different for the different colleges according to the courses. For top universities the interest rate is low and high for others.


  • Processing time: Banks approve and penalize loans depending on the borrower's credit history. Bank quickly approve loans for reputable courses that provide job opportunities. Whereas NBFCs approve and penalize loans faster regardless of course type and university.


  • Purchase of Loans: Purchase of loans is strictly regulated in banks that provide educational loans only for courses with well-defined job opportunities to ensure a good potential income in the future. Non-bank financial companies are more comfortable and flexible in obtaining loans and offering loans for many training courses with simpler terms.


  • Interest rates: The bank calculate the Interest rates depending on the bank's current base interest rate. In the case of offshore, it usually ranges between 10.5-12% for secured loans and 10.75-14% for unsecured loans.


  • Loan amount: Banks usually have a high limit on the loan amount depending on the type of course and the level of the university. There is no limit on the amount borrowed by NBFCs. Regardless of the university and the type of course, their loan structure and penalties depend on the borrower's criteria.


  • Processing Fees: Banks charge a processing fee of 0.5-2%. The processing charges charged by NBFCs vary from 1-2 percent.
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