Differences Between Banks and NBFCs For Education Loan

So, what is the difference between banks and nbfc? Here are a few pointers on the difference between Banks and NBFC.

Written by Shreya Berry

Shreya has expertise in writing engaging content for the readers and has a deep interest in unique applications of technology in various domains. She has worked closely on projects with Neil Patel Digital, Hindustan Times, News 18 and Shiksha.

December 30, 2020

In today’s world, educational loans have become a requirement, with more and more students choosing to study abroad. In fact, a lot of variables play a key role in deciding a student’s correct college loan. Students have to choose an education loan that is best suitable for them and still fits under the financial brackets defined by their guardians, based on what the length of the course study demands. So, what is the difference between banks and nbfc? Here are a few pointers on the difference between Banks and NBFC.

Flexibility of Course

The difference between nbfc and bank is that banks typically provide you with education loans to prestigious university institutions in India and abroad. But NBFCs, regardless of their work prospects, may provide student loans for any educational course. You will need to search the name of the educational institution on the approved list of banks as well. You will not get the loan if it is not on the list. When you borrow a loan from a non-banking financial institution, you don’t usually face those circumstances. 

Expenses Covered

Diff between nbfc and bank is that banks leave a margin of 5 percent-15 percent over your loan number, ensuring that 85 percent-95 percent of your requirements will be covered by the education loan. The loan will help you pay for costs such as tuition fees, test fees, travel fees, hotel fees, purchases of books, etc. You should either expect your parents to cover the margin money or take a grant or assistant program for assistance. Whereas, NBFCs may not tax any margin on your lent number and have 100% of the actual cost of tuition. The loan sum will manage all your costs over the course duration.

Faster Approval

After verifying the applicant’s credit background and after diligent testing as to where the student is applying, a bank accepts and sanctions the loan. It only sanctions the loan if it considers that the entity is a recognized institution. An NBFC would not process at a much quicker pace on these variables and penalty loans regardless of the form of course and the institution. But relative to banks, NBFCs may charge a high processing fee for the education credit. Faster approval is a major difference between nbfc and bank.

Rate of Interest

When we talk about the difference between Banks and NBFC, rate of interest is a major factor. Based on your taxable salary, the interest rate on your college loan is very competitive, which gives you tax benefits. So who’s giving you a cheaper rate of interest? The bank will provide you with an education loan based on its lending cost, as you know. In comparison, the interest rate would be determined by the NBFC depending on the volume of the loan and the user’s credit capability. And there are high odds of having a reduced rate of interest on an education loan from an NBFC.

Loan Security Requirements 

When the debt balance is above a certain cap, you need to supply the bank with a tangible asset. The difference between Banks and NBFC is that if you borrow a loan from the NBFC, the loan is not constrained, and the collateral needs are dependent on the individual’s credit score and repayment potential. Then you can take a loan from an NBFC if you are sure of borrowing a high loan sum without any protection mortgage. Otherwise, a good choice is a bank.

Loan Amount 

Loan amount is a significant difference between loan from nbfc and bank. If you borrow an educational loan from a bank, you will get a loan up to a fixed threshold amount. At the same time, the NBFC has no cap on the amount of your loan. The loan will be dependent on the academic success of the recipient and on the parents’ income or credit background. So, by comparing the NBFC or bank bid, apply for the loan and choose the one that fits the specifications.

Duration of Moratorium Period

The difference between Banks and NBFC is that the bank provides you with a moratorium period of 6 to 12 months after the end of your course. You are not expected to pay the loan EMIs in this timeframe. However, during the moratorium period, you are entitled to make interest payments. The suspension will be six months if you get a position with the institute or college placement program. Otherwise, it would be up to 1 year. To find work that does not exceed six months, an NBFC will provide you with a shorter period.

Customized Services

If you are borrowing a loan from a private sector bank, you get specialist services. And the NBFC can provide you with services such as doorstep services, quick overseas visa clearance, 24X7 online customer support, etc. This is the service difference between Banks and NBFC.

FAQs for taking education loans from banks

Do I need a co-applicant in India for educational loans?

Yes, most education loan banks need a co-applicant in India to apply for educational loans. If the student is employed and wants to follow an educational path, an exception can be made, given the student is the sole repaying authority for the education loan taken. 

There are two types of co-applicants: 

Primary applicants: father, mother, siblings, spouse 

Secondary co-applicants: direct in-laws, paternal/maternal-uncle/aunt

What is the rate of interest in India for education loans?

Educational loan interest rates vary from 8.00 percent to 16.00 percent for Indian academic institutions. Education loan interest rates for education for Indian students at international institutions vary from 9.00 percent to 18.00 percent.

 Do overseas education loans cover travel and hostel lodging costs?

Yes, they do. Almost all education loans cover travel and lodging expenses for studying abroad in India. These costs include renting of accommodation, hostel fees, vouchers for meals, mess fees, restricted foreign travel expenses. Some of these education loan banks may not have the common ‘building fees, rental agreement legal fees, student residential property membership/maintenance fees,’ which are usually paid by international institutions. For clarification about these expenditures, students should consult with their education loan provider.

What documents are required for the application for education loans for domestic education and studying abroad?

Not all educational loan banks need the loading of educational loan papers. The rest escape heavy paperwork by applying online. Students do need to have the following documentation available at all times for educational loans:

  • Identity/KYC documents
  • Financial Documents
  • Academic documents and records on acceptance
  • Documents linked to collateral

Some education loan banks also require legal documents, loan insurance documents, records of third party guarantees; but only in special cases of loan amount or loan tenures for higher education.

FAQs for taking education loans from NBFCs

NBFCs perform similar roles to banks. What’s the distinction between banks and NBFCs?

NBFCs lend and make loans, so their operations are close to those of banks, but as seen below, there are a few differences:

i. The NBFC is unable to accept demand deposits;

ii. NBFCs do not form part of the billing and settlement system and are unable to grant randomly drawn cheques.

iii. The Deposit Insurance and Credit Guarantee Company deposit insurance facility is not open to NBFC depositors, as in the case of banks.

Where can a list of Registered NBFCs and instructions given to NBFCs be found?

The list of registered NBFCs can be seen on the Reserve Bank of India website at www.rbi.org.in → Sitemap → NBFC List. In addition to being released via Official Gazette notices and press releases, the directions issued to NBFCs from time to time are also hosted at www.rbi.org.in → Notifications → Master Circulars → Non-banking.

High-interest rates are charged by NBFCs to their borrowers. Are there any interest rate thresholds charged by the NBFCs to their borrowers?

The Reserve Bank of India has deregulated interest rates charged by financial institutions to borrowers (other than NBFC- Micro Finance Institution). The interest rate to be charged by the company is subject to the terms and conditions of the loan agreement signed between the borrower and the NBFCs. The NBFCs must, therefore, be straightforward and the interest rate and manner of arriving at the interest rate for the various types of borrowers should be disclosed in the application form to the borrower or customer and clearly conveyed in the letter of sanction, etc.

A Final Word!

Both banks and NBFCs have the same education loan market. Yet, when it comes to friendly process, pace, and other words, the educational loan offerings of NBFCs rank above conventional banks. Now pick the one that looks amazing according to your financial conditions and prospects for the future. Are you worried about your student loans? UniCreds has got you covered! Get a hassle-free loan for your overseas education today!

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