Financial instability could often cause a hurdle in pursuing higher education. Insufficient funds can often be a cause for students to give up their aspirations of continuing their higher education abroad. To address such concerns, banks and financial institutions extend education loans. These loans aid students to pursue their higher education in India or even abroad, without worrying about a shortage of funds.
If we talk about the rising cost of education in India and abroad, studying at the top universities is increasingly becoming a challenging situation and a big thing to achieve. In a study by the Indian Statistical Institute, almost 2.6 Lakh Indian Students are pursuing higher studies abroad in 2019. This number is most likely to surpass 6 Lakh by 2020. Although higher education overseas seems a lucrative proposition, the cost involved is steep.
Today, numerous lenders extend education loans for abroad studies under varying terms and conditions. This includes public as well as private entities. A few years back, banks were the only source available to borrowers for availing education loans. With the advent of NBFCs or Non-Banking Financial Companies, the number of options for fund-borrowing has widened. Unlike banks, NBFCs are private entities or lending institutions that are not regulated by the usual set of norms, yet function the same way.
Difference between education loans from banks and NBFCs
Before you opt for an education loan to pursue abroad studies, dedicated courses, or educational and professional courses on EMI, it is important to choose the right lender. To do so, the first step is to acquire thorough knowledge regarding lending institutions. Following is a look at the points on which advances extended by banks differ from that of NBFCs –
- Usually, education loans can be utilized to finance courses from reputed institutions in India and abroad. The courses for which the loan is sanctioned are usually of non-vocational streams. On the other hand, NBFCs have no such filters. They offer loans for a wider variety of courses and institutions.
- Typically, these loans are extended mostly when the course has job prospects in the future. This ensures that students can repay the borrowed amount after the moratorium is over. NBFCs are far more lenient on this matter, and sanction loans for courses that are not mainstream.
- When it comes to processing time, NBFCs take comparatively lesser time to sanction loans. Applications with the mention of renowned courses or institutions usually get faster approval. NBFCs provide faster loan approvals, irrespective of the course type or institution name.
- The processing fees charged against typical education loans usually range between 0.5% to 2% while those charged by NBFCs range between 1% and 2%.
- Government subsidies can be availed on education loans borrowed from traditional sources. These subsidies apply to the weaker section of the society and are facilitated after the moratorium period ends. There are no such subsidies applicable against education loans from NBFCs.
- Traditional lenders generally ask borrowers for security if they wish to avail of a loan above Rs.4 lakh. Loans ranging between Rs.4 lakh to Rs.7.5 lakh can be availed with a third-party guarantee. Loans above this range require security in tangible form. NBFCs might ask for collateral based on the principal amount and borrower’s credit history.
- The interest rate charged on education loans by typical lenders ranges from 10% to 17%. It is determined as per the current base rate. Interest rates charged on education loans by NBFCs are floating interest rates.
- Usually, there’s a maximum ceiling on the education loan amount disbursed, whereas NBFCs do not impose restrictions on the maximum amount.
NBFCs are also known to extend several other types of funds to finance education. For instance, a loan against property or LAP is one of the most viable options for this purpose. You can check how a loan against property could be a better way to finance your child’s education before opting for it. LAP is a type of mortgage loan for which borrowers will need to pledge collateral to avail funds.
LAP loan does not include end-use restrictions, allowing borrowers to utilize it to finance education costs in India or abroad. Students or their parents can acquire funds up to Rs.3.5 crore through a loan against property. The eligibility criteria set under LAP is usually simpler as compared to education loan eligibility, given that it is a secured loan.
Reputed NBFCs also offer exclusive pre-approved benefits on secured and unsecured loans. As a borrower, you can enjoy a simpler, faster, and hassle-free experience of availing loans against property or home loans through these offers. Check your pre-approved offer by providing your name and mobile number.
Before applying, prospective borrowers can access the education loan calculator online to get a better idea regarding loan EMIs and plan their repayments accordingly.