Whether we look at Indian banks or USA banks for education loans to study abroad, the machinery that creates a system of borrowing from the bank varies on the financial structure of the country it belongs to. The Education Loan is a loan taken to pay tuition costs, hostel fees, and other associated expenditures for following a particular educational course in an institution. Banks provide student loans from some institutions for undertaking pre-specified courses in India and overseas. Banks shall publish a list of approved courses and institutions for which they shall have education credits. Before making your decision on the basis of all variables such as interest rate, collateral protection, co-signer criteria, etc., you must be aware of all the loan terms and benefits provided by the Indian banks vs NBFC when applying for an education loan in the USA.
The Difference Between Indian Banks Or USA Banks For Education Loan
Broadly speaking, the Indian banking system and the European banking system are quite similar. However, the American banking system differs greatly from both of them. Let’s learn how the banks in USA and India work differently from each other.
In India, banks have a branch banking system. This means that a handful of banks have a network of hundreds of branches each, all over the country. But this is not the same in the United States. American banks follow a unit banking system. This means that there are over thousands of independent banks spread across the US. It is true that some of these banks have branches too, but they are very small in comparison to the Indian banking system. Most of the US banks have regional operations.
In India, there is a single statutory central bank called the Reserve Bank of India (RBI). The RBI is responsible for all the banking activities and regulations in India. The United States of America on the other hand, has 12 Federal Reserve Banks whose areas of responsibility are clearly demarcated based on geographical boundaries. Now, in order to control these 12 Federal Banks, there is the Federal Reserve Board based in Washington DC. The Chairman of the Federal Reserve Board, has more power than the Governor of RBI. This is a glaring difference of the US banking system vs other countries.
Whether it is Indian banks or USA banks for education loan, both countries are heavily controlled by a central bank. The RBI is owned by the Union Government whereas the Fed Banks are owned by bankers. The bankers elect the Board of Directors who act as representatives of the bankers.
Since the RBI is a part of the Ministry of Finance of India, it has limited freedom in its operations. The US Federal System on the other hand, enjoys complete freedom as it operates independently. They are not answerable to either the Secretary of Treasury or even to the President.
The banking system in India is such that banks rarely borrow funds from the Reserve Bank of India. However, in the US, American banks are known to frequently borrow funds from the Fed.
The Repo Rate, which is the rate at which RBI lends to Banks is moved rarely. But in the US, the Fed Board reviews the Fed Fund Rate every six weeks in the Fed Open Market Committee (FOMC) and is often moved.
Here are nine main criteria to assist you in choosing the right lender for your dream education!
Types of Loans:
Several public (SBI, Bank of Baroda, etc.) and private banks (Axis Bank, ICICI Bank) and NBFCs (Incred, Avanse, HDFC Credila etc.) in India provide education loans for studying in the US. The US provides two forms of home country education loans, with federal student loans only providing adjustable repayment options (income-based repayment plan) and fixed interest rates for US residents.
You ought to get a co-signer who is a permanent US citizen with strong credit who has stayed in the US for the last two years to apply for an education loan in the US, which could be very hard to find. In this case, however, Indian banks vs NBFC both are more preferable, as they do not actually need a US co-signer.
Rate of interest
For college loans issued by US banks, the variable interest rates for private student loans vary from 3.75 percent APR to 8.75 percent APR. The fixed interest rates for federal loans range from 7.24 percent APR to 12.29 percent APR, which is very high. When talking about Indian banks vs NBFC, it is still easier to take an education loan from Indian public banks because the exchange rate, conversion rate, etc., are no headache. Though NBFCs appear to have higher interest rates, they pay the entire tuition costs and have unsecured loans as well.
As opposed to US banks, Indian banks often have versatile schemes with longer repayment terms and prolonged moratorium periods. There is a repayment tenure of about 7-10 years for most Indian banks. Usually, the repayment begins after the course is finished, whether in India or the US. Some banks also have a time of relaxation of 6 months after finding a job or a year after finishing repayment studies (moratorium period).
Requirement for collateral
Indian public banks are now demanding collateral for loans greater than Rs 7.5 lakhs. A third-party guarantee is required for loans over Rs 4 lakhs to Rs 7.5 lakhs. Whereas the NBFCs are calling for an education loan guarantee of over 45 lakhs. While a US loan has no collateral, you would end up paying any extra amount given the processing cost, lose the exemption from income tax, and parity in interest rate.
Depending on the number, NBFCs in India will fund up to 100 percent of the loan. At present, no margin money is needed for loans of up to Rs 4 lakhs in the case of public banks. On the other hand, the needed margin of money rises to 15 percent for studies overseas.
You can demand an exception from the interest portion of your loan under section 80E. In addition, under schemes for minority groups, if you take out a loan from a nationalized bank in India, the Govt of India pays your interest on a moratorium term. These advantages will not be offered to you by the US lenders, and thus an interest rate of 10% would essentially be 10%, only not less than that.
The processing charge for certain banks such as Prodigy Finance is 2.5 percent of the loan size, i.e., your processing fee will be INR 1 lakhs for an average US loan of INR 40 lakhs. In comparison, Indian banks charge a transaction fee between zero (nil) and a limit of INR 10K.
Margin for loan
If you take out a loan from a US lender, it is appropriate to self-finance the loan margin, i.e., the remaining 35%. For students/parents to organize the whole remaining number, this may be a burden. In comparison, without the loan margin principle, Indian NBFCs finance you 100 percent of the cost of tuition, housing, travel, and misc. Indian public banks, on the other hand, can also finance up to 100 percent of the gross attendance expense for you.
The Difference Between Indian Banks vs NBFC
A bank is a financial institution that is authorized by the Government to provide banking services to the general public. An NBFC on the other hand, is a company that provides banking services to people without holding a bank license. This is the difference in definition between Indian banks vs NBFC.
We’re all aware that banks accept deposits. However, NBFCs are not allowed to accept such deposits which are repayable on demand.
Banks are allowed to receive foreign investments but the percentage of FDI is limited to not more than 74%. Do note that this is applicable only to private sector banks. NBFCs can, however, receive 100% foreign investments.
It is mandatory for banks to maintain reserve ratios like CRR or SLR. Since NBFCs are not part of the Banking Regulation Act, 1949, they are not required to maintain reserve ratios. This is an important distinction between USA Banks Or Indian Banks For Education Loan.
Banks are permitted to provide services like overdraft facility, the issue of traveller’s cheque, transfer of funds, etc. NBFCs do not have the authority to do this for the general public.
There are a number of options to help you on how to compare banks and apply to several lenders via a single-window application with utmost simplicity and comfort at absolutely no service fee and no visits to any bank to ease your access to the best education loan offerings for India and abroad. Want a hassle-free loan process? Choose UniCreds and fulfill your education dreams today!
Q.1) Are NBFCs better than banks?
Ans- There are advantages and considerations to both options. The advantages of NBFCs over banks include fast approvals, minimal documentation, competitive interest rates, and wide presence in semi-urban and rural areas, while banks provide stability and regulatory oversight.
Q.2) Why are NBFCs more profitable than banks?
Ans- Non-Banking Financial Companies (NBFCs) outperform the banking sector due to reduced operational costs, enabling them to provide more affordable loans to customers. Consequently, the credit growth of NBFCs, representing the rise in the funds extended to clients, surpasses that of the banking sector.
Q.3) Who controls NBFCs in India?
Ans- RBI regulates and controls the NBFCs in India. As per RBI Act, RBI can exercise surveillance, supervise, inspect, issue directions, lay down policies and regulate the Non-Banking Financial Companies (NBFC’s).
Q.4) Is money safe in NBFC?
Ans- Yes, your money is safe in NBFC as NBFC is a RBI registered company.
Q.5) Can we transfer an education loan from NBFC to a bank?
Ans Certainly, it is possible to transfer an education loan from an NBFC to a bank.