NBFC vs Bank Education Loan: Which is Best for Indian Students?

Here is a common question for those applying for an education loan: Should you consider an education loan from NBFC or bank? Which one is better: a bank education loan or an NBFC education loan?

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, NBFC for education loans 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? What is the difference between a bank and NBFC? 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 the difference between bank and NBFC for loans in detail.

Key Differences Between NBFC and Bank Education Loans in India

Below, we look at the key differences between bank and NBFC education loans:

NBFC Education Loan Without Collateral: Who Qualifies and How it Works?

Many NBFCs offer education loans without collateral. However, their eligibility criteria and requirements will vary based on the lender and borrower profile.

Applicants must have the following general requirements to qualify:

• Must be Indian citizens
• Must be above 18 years old
• Must have a confirmed letter of admission from an accredited/recognised institution
• Must have a co-applicant with a stable income and a good credit history

Some lenders will also look at the student’s academic history, the institution’s reputation, and collateral, if applicable.

Bank vs NBFC Education Loan: Interest Rates, Processing Fees, Repayment

When looking at NBFCs vs bank education loans, it is crucial to look beyond loan amounts. Interest rates, processing fees, and repayment tenures will all affect the borrower’s upfront and total costs.

Here are the differences between NBFC vs. bank education loans in India:

1. Interest rates: Interest rates depend on lots of factors, like if the loan is secured or unsecured, the loan amount, the borrower’s profile, repayment tenures, and so on. However, NBFCs generally charge higher interest rates than conventional banks.
2. Processing fees: Banks usually offer lower processing fees than NBFCs.
3. Repayment tenures: Repayment tenures generally vary based on the borrower’s profile, course, and principal amount. However, NBFCs will usually offer more flexible EMI and repayment options than conventional banks.

Eligibility Criteria & Documents for NBFC vs Bank Study Loans

The eligibility criteria for education loans will generally vary based on the financial institution. Here are the major differences between eligibility criteria for NBFCs and bank study loans:

1. Minimum income requirements: Banks are stricter regarding income stability and minimum income requirements. In contrast, NBFCs are more flexible and offer options for lower-income brackets as well.
2. Credit score requirements: Banks are generally stricter and have minimum credit score requirements (e.g., a CIBIL score of 700 or higher). NBFCs are more likely to extend credit to applicants with lower credit scores.
3. Documentation required: Conventional banks have more stringent documentation requirements, including proof of income, KYC documentation, PAN and Aadhaar cards, employment letters, salary slips, and more. Conversely, NBFCs are usually more flexible, typically requesting only basic KYC and proof of income.

NBFC vs Bank: Approval Speed & Experience for Students

When it comes to processing speed and approval times, NBFCs are generally faster.  Their documentation requirements are minimal and can be done digitally, allowing for quicker verification. Loan disbursement is also faster and can often be completed within 24 to 48 hours of approval.

In contrast, banks usually follow a more formal process. Processing can take longer (10 to 15 working days) and may even extend to 30 days in some cases. The documentation is extensive and includes detailed verification checks. As a result, disbursement timelines are slower, generally taking one to two weeks after loan approval.

Tax Benefits & Government Subsidies: NBFC vs Bank Education Loan

Education loans obtained from banks are eligible for income tax deductions under Section 80E. Interest paid by the borrower or co-applicant may be claimed as a deduction, thereby reducing taxable income.

In contrast, education loans obtained from NBFCs generally do not qualify for tax-exempt status under Section 80E. It is important to research lenders, banks, and government policies before choosing a loan, in order to avail of the best benefits.

List of Banks & NBFCs Offering Education Loans

The list of banks and NBFCs offering education loan is given below.

1. Banks
2. Canara Bank
3. State Bank of India
4. ICICI Bank
5. Axis Bank
6. Union Bank of India
7. HDFC Bank
8. IDBI Bank

2. NBFCs

• Tata Capital
• Avanse Education Loan
• HDFC Credila Education Loan
• Bajaj Finance

Conclusion

This brings us to the end of difference between bank and NBFC student loan. Banks and NBFCs serve the same education loan target market. Education loans from NBFC are processed quickly compared to banks and provide higher course flexibility. Banks offer a longer repayment tenure compared to NBFCs. However, this can lead to you paying a higher overall amount despite a comparatively lower interest rate.

Today, education loan borrowers realise that it is more about value than price when it comes to taking a personal loan for education. This is why education loan from NBFCs are becoming the first port of call in tier 2, 3 and 4 cities/towns among students.