Banks vs NBFCs

Education loans for overseas study are provided by banks and non-banking financial companies (NBFCs) in India. In India’s financial industry, banks—which are subject to Reserve Bank of India (RBI) regulation—are essential. Government-owned organisations, public sector banks include the State Bank of India, Bank of Baroda, and Punjab National Bank. Private banks are businesses that are privately held, such as Axis Bank, ICICI Bank, and HDFC Bank.

Conversely, non-banking financial companies, or NBFCs, provide student loans without needing a banking licence. They raise money in a number of ways, including bonds, debentures, and deposits. Well-known NBFCs with a focus on serving the needs of students include HDFC Credila, Avanse, Auxilo, and InCred. They also offer other financial products in addition to education loans.

Functional difference between Banks vs NBFCs for abroad education loan

1. Supervision by the Reserve Bank of India (RBI): Banks must abide by strict regulations pertaining to interest rates, loan conditions, and consumer protection. NBFCs, on the other hand, are subject to RBI regulation but enjoy a greater degree of discretion over loan terms and interest rates.
2. Interest rates: Interest rates: Regular people like you and me provide the money that banks borrow. They pay us interest, usually between 3.5% and 7%, on our fixed deposits and savings accounts. Therefore, it is reasonable to assume that banks charge their customers an average of 5.5% to 6% for borrowing money. Conversely, non-bank financial companies (NBFCs) obtain loans from banks or investors, with an average borrowing cost of 9.5%. Since banks lend money from outside, an NBFC would offer a higher interest rate than a bank if they were both lending money to the same clientele, which would be students.
3. Loan amount and collateral: Secured education loans with collateral are normally available from public banks for up to INR 1.5 Cr or more. Only INR 7.5 Lakh in unsecured loans are available from public banks, which is typically insufficient. However, NBFC education loans without collateral are the recommended option for quicker loan approval and more accommodating documentation.
4. Loan application process: Banks usually have a more involved documentation and verification process when it comes to loan applications. They demand that borrowers produce a number of documents, including transcripts, proof of admission, evidence of income, collateral information (if any), and more. The application process for NBFCs is more efficient, and they frequently need fewer documents in order to approve loans. They might have quicker turnaround times for loan approval and disbursement as well as more lenient eligibility requirements. For borrowers who need quick access to funds, NBFCs may be a good choice.
5. Tax benefits: You (or your co-applicant) will automatically qualify for an income tax deduction under section 80E if you take out a bank loan; this means that the interest you pay the bank can be deducted from your non-taxable income. However, in the case of NBFCs (apart from HDFC Credila), there are no explicit guidelines regarding income-tax exemption.

To read the full comparison read this.

List of leading banks and NBFCs for education loan in India

Key considerations when selecting Banks and NBFCs for abroad education loans

• Interest Rates: Compare the interest rates among different banks and NBFCs to identify the most cost-effective option. Typically, public banks offer competitive rates starting at 8.15%, private banks slightly higher at 11.50%, and NBFCs at 11.75%.
• Loan Amount: Evaluate your financial needs and review the loan amounts offered by various lenders. Generally, banks provide higher loan amounts, with public and private banks extending loans up to 1.5 crore or more, while NBFCs offer loans ranging from INR 80-90 lakh.
• Processing Time: Consider the urgency of your loan requirement. If time is a critical factor, opt for an NBFC with a quicker loan processing and disbursement system. Banks usually have longer processing times, making NBFCs a preferred choice for urgent loans.
• Processing Fees: Examine the processing fees charged by lenders. Banks often have low or no processing fees (up to INR 10,000), while NBFCs typically charge a processing fee ranging from 1% to 2% of the loan amount.
• Repayment During the Course Period: Understand the repayment terms during your study period. Banks generally don’t require interest payments while you’re studying, with repayments starting post-employment or six months after completing the course. In contrast, NBFCs may mandate monthly payments, including full or partial interest, during the course.

Both banks and NBFCs offer unique features and benefits in their education loan offerings. Students should explore options from both sectors to find a loan product that best suits their financial needs and preferences. Whether leveraging the extensive network and government support of public sector banks or opting for NBFCs with tailored loan solutions, students have choices to turn their overseas education dreams into reality.

The lending organisations making the loans make the biggest distinction. As part of their services, banks—financial organisations subject to Reserve Bank of India (RBI) regulation—offer education loans. Non-Banking Financial Companies, or NBFCs, provide banking services without a licence. Lower interest rates, bigger loan amounts, and a vast branch network for convenience are typical benefits of banks. Because of their established track record in the financial industry and regulated nature, they also offer a sense of security and dependability. More flexible repayment options, loosened eligibility requirements, and faster loan processing times are all provided by NBFCs. Additionally, they might be more understanding of borrowers who don’t fit the strict bank requirements.