Here is a quintessential question: Which one is better? An iPhone or a Samsung S7? 7-inch heels or ballerina flats? Beach vacation or an adventure vacation? Studying in the US or studying in the UK? Banks or NBFCs?
In the larger sense, it’s all apples and oranges. They all have their own distinct features and values and that’s what makes it better. So when it comes to loans, especially an education loan, which one is better? A bank or a non-banking financial company?
Let’s look into some aspects of the past when it comes to this discussion. The education loan market was dominated by banks in India. However, NBFCs have gained considerable market share and today offer an alternative when it comes to speedy disbursal of loans, and friendly lending norms for education loans.
This, however, does not mean you as a borrower cannot avail an education loan from a bank. Both these financial institutions have their own terms, processes and features. So which is better? Well, if you plan to apply for an education loan, you should be aware of the pros and cons of both. Let’s look into it in detail.
1. Education loan’s application to disbursal process
Getting an education loan from a bank means the student/guardian has to apply for it with relevant documents. After submission, the process involves approval and then disbursal. A seamless process is the most important aspect for the borrower when they are expecting the education loan funds. Even after having long-standing deposit relationships with banks, getting a loan from them is a different ball-game. For loans above a certain level, collateral is demanded by banks. There are different requirements too, all of which ensure that the process is followed to the minutest of details. So, often customer convenience and user experience suffer at the hands of banks.
In the case of NBFCs, when it comes to giving a personal loan for education. The requirement of collateral does not arise if one is taking an unsecured personal loan. The entire process right from application to final disbursal is smooth and without hiccups for borrowers. Since most of the processes are automated, the borrower has a complete idea at each step. This is why today borrowers are knocking on the doors of top NBFCs when they want instant loans. If you want to have a look at how the process works, you can check the Tata Capital website.
2. Interest rate differential
NBFCs normally charge a higher interest versus the banks, but that is a small price to pay given the ease of loan processing. Banks charge lower interest rates, but the timing of loan disbursal and the lack of personalized attention are often grey areas. Even if a bank offers 2-3% points lower interest rate than an NBFC, usually stringent rules and sub-optimal processes give rise to tensions for a bank borrower. In comparison, a borrower who has taken a personal loan for education purposes from an NBFC is much more relaxed.
Banks are giving loans for education, but the cheapest interest rates are always for the top universities and institutes. However, we must know that a large number of institutes in the country and also outside are not part of the so-called preferred bank education loan network. Education loan borrowers today are realizing that it is more about value than price when it comes to taking a personal loan for education. This is why NBFCs are becoming the first port of call in tier 2, 3 and 4 cities/towns when students are thinking about education loan.
3. Loan tenure:
The education loan tenure is an important part of the entire decision. Why? This is because the repayment period decides the total outgo from your side. Typically, NBFCs give education loans with relatively shorter tenures than banks. For instance, Tata Capital offer education loans with tenures ranging up to 72 months. Banks give loans for higher loan tenure, say 10-12 years in some cases. A longer tenure is not a good thing necessarily.
A shorter loan tenure means your EMIs may seem bigger but the total amount, including interest, is paid quickly. For instance, a Rs 10 lakh personal loan for education for 5 years at 14% interest rate means you may pay Rs 23300 per month. This means your total repayment amount over 60 months would be Rs 13.96 lakh.
A bank may offer you Rs 10 lakh education loan at 12% interest for 8 years or 96 months. The EMI for the bank loan would be Rs 16300 but you will end up paying a total of Rs 15.61 lakh — a full Rs 1.65 lakh more even though the bank’s loan was 2% point cheaper. If you need a personal loan for a course which is not approved/accredited by public or private sector banks, NBFCs are the best option with great customer service and shorter loan repayment tenures. Also, it’s often possible to get higher Education loan eligibility with NBFCs.
Banks and NBFCs serve the same education loan target market. Yet, the educational loan offerings of NBFCs score over traditional banks when it comes to friendly process, speed, and other terms. The student who will be repaying the loan after the course of the study should make a prudent choice based on their requirements. If you have more doubts or queries you can check for our education loan online.