As the expense of education continues to rise, the education loan comes across as a boon to students, particularly those interested in studying abroad. However, you must select the appropriate type of loan and borrow from the appropriate institution.
NBFCs, for their customized products, greater reach, solid risk management, co-lending agreements, and dynamic digital presence, have excelled in the area of financial money lending. As a result, a 25% CAGR was expected for unsecured non-bank loans (excluding government non-banks) in 2020-21. The previous forecast was 6–8%.
Types of Education Loans
Education loans are classified into two broad categories: secured and unsecured loans.
A secured loan is backed by an asset or security. Secured loans are ideal for buying a car or a house since these act as collateral. Student loans are different from secured loans. However, secured loans, such as a loan against property, are an ideal way to arrange money as secured loans draw a much lower interest rate than student loans.
Unsecured loans are loans availed of without any security or collateral. Because this is a riskier enterprise for them, banks and NBFCs generally demand higher interest rates and fees.
What Are NBFCs?
When you consider an education loan, the first thing that comes to mind is a bank. However, in today’s environment, when the majority of public sector banks are struggling to manage non-performing assets (NPAs), particularly in the education loan category, banks are becoming increasingly restrictive in their loan offers.
Alternatives include NBFCs (Non-Bank Financial Corporations). The primary distinction between a bank and an NBFC is that banks lend money to debtors using funds deposited with them. In contrast, NBFCs borrow funds from investors, financial institutions, and banks to lend money to debtors. NBFCs are subject to fewer restrictions, which allows them greater freedom with their consumers.
Factors Considered by NBFCs for Education Loan
Unsecured loans carry a higher risk for lenders than collateralized loans. As a result, NBFCs evaluate several variables before issuing a loan. These are some of the variables.
- Academic information about the candidates (10th, 12th, graduation degree and certificate, test scores, etc.)
- The co-applicant’s or guarantor’s profile, accompanied by documentation (income tax returns, salary slips, CIBIL score, etc.)
- The country where you wish to study and the course you wish to pursue.
Benefits of an NBFC Education Loan
- Unlike banks, NBFCs provide loans for a wider range of institutions and courses internationally.
- NBFCs approve and distribute loans far faster than banks.
- They are also more likely to cater to specific student needs.
- An NBFC loan needs less paperwork.
- NBFCs usually do not cap student loan amounts.
- Course requirements and collateral value determine how much they may lend.
- Banks can only lend a student a certain amount.
The Drawbacks of an NBFC Education Loan
- They charge higher interest rates than banks because they borrow to lend.
- Borrowers aren’t able to opt for the government’s subsidy.
- Constantly fluctuating interest rates.
- Few countries accept NBFC education loans.
A Comparison Between Banks and NBFCs
Banks and NBFCs (Non-Banking Financial Companies) are the main financial intermediaries. The basic difference between banks and NBFCs are:
|Basis of Comparison:||Banks:||NBFCs:|
|Rate of Interests||Low Interest Rates||High Interest Rates|
|Processing Time||It is about 10-15 working days.||Within two working days of receiving the document.|
|Flexibility||Documentation is less flexible.||Documentation is more flexible.|
|Government subsidies||Government sponsored interest subsidies are available.||There are no tax advantages and interest subsidy available as it is not applicable under Section 80(E).|
|Limitations||A predetermined cap on the amount that may be sanctioned.||There are no monetary limits provided the case is persuasive.|
Who to Contact for a Foreign Education Loan Between a Bank and a Non-Bank Financial Company?
Getting an education loan from an NBFC has several advantages and disadvantages. Unsecured loans from public banks are not sufficient enough to fund education abroad. NBFCs, on the other hand, provide more flexible qualifying requirements, making loans more affordable. Applying for a personal loan with an NBFC has these advantages.
- More flexibility in approval and disbursal
- Lesser documentation requirements
- Flexibility to pay back the loan over a longer period
- Zero part-prepayment and foreclosure charges
- Online account management
- Affordable interest rates
Banks and NBFCs compete for the same education loan market. Nonetheless, NBFCs’ educational loan offers to outperform traditional banks in terms of procedure friendliness, processing time, and other criteria. For these reasons, an NBFC loan is always preferable. A borrower may be eligible for a higher-value quick loan from a non-banking financial company than a bank.
Once you apply for the education loan against property, you can get a faster approval and the money disbursed into your bank account within 96 hours. You can also calculate your EMI using the education loan calculator and repayment schedule accordingly.