A common means of funding for students who want to pursue higher education overseas is education loans. In India, banks and non-banking financial companies, or NBFCs, are the main providers of student loans. The Reserve Bank of India (RBI) regulates banks and mandates that they adhere to strict rules about interest rates, loan terms, and customer safety. NBFCs, on the other hand, are subject to RBI regulation but enjoy a greater degree of discretion over loan terms and interest rates.
Banks usually require more thorough verification and documentation. 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.
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, there are no precise guidelines regarding income-tax exemptions.
Education Loans from Banks
In India, banks are the most popular place to get student loans. Students who want to study abroad can apply for education loans from public, private, and foreign banks. Bank loans for schooling typically have lower interest rates than NBFC loans. Additionally, banks provide flexible options for loan repayment, like moratorium periods that let students begin making loan payments after they finish their education.
Education loans are available for studying overseas from public sector banks like Punjab National Bank (PNB), Bank of Baroda, and State Bank of India (SBI). Banks in the private sector, including Axis Bank, ICICI Bank, and HDFC Bank, also provide education loans for overseas study.
The eligibility criteria for education loans from banks vary from bank to bank. However, some common eligibility criteria include:
- The student must be an Indian citizen
- The student must have secured admission to a recognized university or institution abroad
- The student must have a co-applicant who is a parent or guardian
- The student must have a good academic record
Education Loans from NBFCs
Another source of education loans in India is NBFCs. Students can obtain loans from NBFCs without the need for collateral because they offer unsecured loans. Moreover, NBFCs provide larger loan amounts than banks. On the other hand, NBFC education loans typically have higher interest rates than bank loans.
NBFCs that are well-known for providing education loans for overseas study include Prodigy Finance, InCred, Auxilo, and Avanse Financial Services. The requirements for NBFC education loans differ from business to business.
However, some common eligibility criteria include:
- The student must be an Indian citizen
- The student must have secured admission to a recognized university or institution abroad
- The student must have a co-applicant who is a parent or guardian
- The student must have a good academic record
For students who want to pursue higher education overseas, education loans are a common form of funding. In India, the two main providers of school loans are banks and non-bank financial companies. While NBFCs offer larger loan amounts and do not require collateral, banks offer lower interest rates and more flexible repayment options. After carefully weighing their options, students should select the financing option that best meets their needs.
Key points to remember while choosing Education loans from abroad studies from Banks and NBFCs
This breakdown provides a clearer comparison between banks and NBFCs for abroad education loans, highlighting key differences in regulatory oversight, interest rates, loan amounts, application processes, and tax benefits.
- Regulatory Oversight:
Banks: Regulated by the Reserve Bank of India (RBI) with strict guidelines on interest rates, loan terms, and customer protection.
NBFCs: Also regulated by the RBI but have more flexibility in determining interest rates and loan conditions.
- Interest Rates:
Banks: Average cost of borrowing: 5.5% to 6%.
Source of funds: Borrow from the public with interest rates on savings accounts and fixed deposits ranging from 3.5% to 7%.
NBFCs: Average cost of borrowing: Approximately 9.5%.
Source of funds: Borrow from banks or investors.
- Loan Amount and Collateral:
Banks: Offer secured education loans up to INR 1.5 Cr or more with collateral.
Unsecured loans limited to INR 7.5 Lakh.
NBFCs: Offer unsecured education loans without collateral.
Preferred for faster approval and more flexible documentation.
- Loan Application Process:
Banks:Extensive documentation and verification process.
Require proof of admission, academic records, income proof, collateral details, etc.
NBFCs:Streamlined application process. Fewer documents required for approval, more relaxed eligibility criteria, and faster turnaround times.
- Tax Benefits:
Banks: Eligible for income tax deduction under section 80E. Interest payments included in non-taxable income.
NBFCs: Limited clarity on income-tax exemption guidelines (except for specific cases like HDFC Credila).
When considering an education loan for studies abroad, both banks and Non-Banking Financial Companies (NBFCs) offer financial solutions. Each has its own set of advantages, and the choice between the two depends on various factors. Here are some advantages of taking an abroad education loan from both NBFCs and banks:
Advantages of Taking an Abroad Education Loan from Banks:
- Low-Interest Rates: Banks, especially government or public sector banks, often offer competitive interest rates on education loans, making them more cost-effective for borrowers.
- Security and Trust: Banks are generally perceived as more stable and trustworthy financial institutions, providing a sense of security to borrowers.
- Government Schemes: Some banks may participate in government-sponsored education loan schemes, offering subsidized interest rates or other benefits to eligible students.
- Wide Network: Banks usually have a widespread network of branches and ATMs, providing convenience in terms of loan application, disbursement, and repayment.
- Variety of Loan Products: Banks typically offer a range of financial products and services, allowing borrowers to explore various options that may be suitable for their needs.
Advantages of Taking an Abroad Education Loan from NBFCs:
- Quick Processing: NBFCs often have a faster loan approval and disbursement process compared to banks, making them a suitable option for students who need quick access to funds.
- Flexible Eligibility Criteria: NBFCs may have more flexible eligibility criteria, which can be beneficial for students who do not meet the stringent requirements set by banks.
- Customized Loan Solutions: NBFCs may offer more personalized and flexible loan solutions, allowing borrowers to tailor the loan to their specific needs.
- No Requirement for Collateral: While banks often require collateral for higher loan amounts, NBFCs may offer unsecured loans, eliminating the need for collateral in certain cases.
- Technology Integration: NBFCs are often more technologically advanced, providing online application processes and digital services that enhance the convenience of loan management for borrowers.
Before choosing between a bank and an NBFC, it’s crucial for borrowers to carefully compare interest rates, loan terms, eligibility criteria, and other relevant factors. Additionally, understanding the repayment options, processing fees, and any hidden costs associated with the loan is essential for making an informed decision.
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