Should you get an Education Loan from a bank or an NBFC? Here are a few pointers to keep in mind before you make the decision.
Education isn’t a cheap affair these days, especially if you’re planning to study abroad. However, it has become easier to get an Education Loan. And the best part about an Education Loan is that, unlike Personal Loans, Vehicle Loans, etc., you don’t have to start paying it back from the very next month. Education Loan EMIs start only once you’re done with your course and start working.
Additional Reading: Get An Education Loan For Your Kid’s Higher Studies
The key to getting the perfect Education Loan is adequate research. A number of banks and non-banking finance companies (NBFCs) offer Education Loans. Each of these loans comes with different features and conditions. You must always compare different options and choose the one that best applies to your requirement. Here are a few key pointers that you must consider before you decide to take the loan from a bank or an NBFC:
NBFCs are more flexible than banks when it comes to courses. The latter usually has an approved list of courses and institutions and they offer loans only for these. At times, banks do consider other courses too, but this solely depends on the applicant’s potential employability after finishing the course and the reputation of the institution the student has applied to.
NBFCs, on the other hand, are more versatile and consider even unconventional courses like music, animation, dance, etc. too. However, NBFCs do analyse the student’s profile, the institution’s profile and the course to deduce the potential employability and future income before they offer an Education Loan.
Additional Reading: 5 Popular Education Loans In India
The interest rate applied by banks is linked to their MCLR, that is, their marginal cost of funds-based lending rate. It is usually the MCLR plus 1.5% to 2% on a floating basis. The yearly MCLR for most banks today is 8.5%, so you can expect the interest rate on your Education Loan to be anywhere between 8.5% and 11%. However, in some cases, the interest rate can be higher depending on the chosen loan amount, the course and the institution.
NBFCs do not follow the MCLR concept, so they have complete freedom to set their own interest rates based on their cost of funds and competition. Also, the rate of interest applied to Education Loans varies from one NBFC to another. Typically, you can expect an interest rate ranging between 11% and 13% if you’re borrowing from an NBFC.
Margin money is the term used to refer to the amount of money that you’ll have to shell out from your pocket before your loan is sanctioned. This isn’t really a common phenomenon when it comes to Education Loans as mostly 100% funding is provided. However, some banks may ask you to shell out margin money. This is usually up to 5% of the loan amount for studies within India and up to 15% of loan amount for courses abroad.
Most NBFCs provide 100% funding, so you needn’t be concerned about margin money.
Additional Reading: 5 Things To Keep In Mind While Taking An Education Loan
The Concept Of Co-borrowers
Banks provide Education Loans on the basis of joint borrowers only. Either the applicant’s parents/guardian or spouse/parents-in-law (in case he/she is married) should sign up as a joint co-borrower in order to get the loan sanctioned.
However, in the case of NBFCs, a joint co-borrower is just one of the parameters taken into consideration for loan eligibility. NBFCs lay more importance on the employment prospect of the applicant post completion of the course.
The differences between taking an Education Loan from a bank or an NBFC is minimal. Of course, the process is much smoother and faster if you go via an NBFC, but banks offer a lower interest rate. Whether you choose a bank or an NBFC is totally your decision, however, we’d suggest that you do your research, finalise on a loan and get started with the process as soon as possible. Last-minute rush can lead to expensive loans.
Additional Reading: Education Loan – A Quick Overview