So, you’ve done the hard part—aced your entrance exams, secured admission to your dream university, and even started planning your farewell party. But wait… there’s one last (and BIG) challenge—how to fund your education without selling a kidney?
Education abroad comes with a hefty price tag, and unless you have a hidden stash of gold lying around, chances are you’ll need an education loan. Now, as you dive into the world of financing options, you’ll hear two words being thrown around a lot—Banks and NBFCs (Non-Banking Financial Companies).
But which one is better? Who can help me score lower interest rates? Who approves loans faster? And most importantly—who is less likely to drown you in paperwork?
Don’t worry, we’ve got you covered! This detailed breakdown will help you understand the key differences between Banks and NBFCs so that you can make the smartest financial decision for your study abroad journey.
Let’s get started!
Understanding Banks and NBFCs: Who’s Who?
Before we compare them, let’s quickly break down what banks and NBFCs actually do.
- Banks
Banks are government-authorised financial institutions that provide loans, savings accounts, fixed deposits, credit cards, and more. They are strictly regulated by the Reserve Bank of India (RBI) and follow the Banking Regulation Act, 1949.
Examples of Banks Providing Education Loans:
- State Bank of India (SBI)
- HDFC Bank
- ICICI Bank
- Axis Bank
- NBFCs (Non-Banking Financial Companies)
NBFCs also provide education loans, but they operate differently from banks. They do not have a banking license and cannot accept public deposits, but they can lend money with more flexibility than traditional banks. NBFCs are regulated by the RBI under the Companies Act, 1956.
Examples of NBFCs Offering Education Loans:
- Credila
- Avanse
- InCred
- Auxilo
Key Differences Between Banks and NBFCs for Education Loans
| Features | Banks | NBFCs |
| Regulations | Regulated under Banking Regulation Act, 1949 | Regulated under Companies Act, 1956 |
| Interest Rates | Lower interest rates, but stricter eligibility criteria | Slightly higher interest rates, but more flexible approvals |
| Loan Processing Time | Longer processing time (2-3 weeks) | Faster processing time (as quick as 3-5 days) |
| Loan Amount | Typically cover up to 100% of the cost of education (higher amounts require collateral) | Can provide 100% cost of education without collateral |
| Repayment Tenure | Longer repayment tenure (up to 15 years) | Flexible repayment with structured EMI plans |
| Moratorium Period | Usually course duration + 6 months to 1 year | Can offer longer moratorium periods |
| Processing Fees | Flat fees (₹10,000 – ₹20,000) | Percentage-based (1-2% of loan amount) |
| Collateral Requirements | Required for higher loan amounts | More collateral-free loan options available |
Which One is Better for Your Study Abroad Loan?
Choose a Bank If…
- You have a strong financial profile (good credit score, co-applicant with steady income).
- You want a low interest rate and don’t mind waiting a few weeks for loan approval.
- You are okay with collateral requirements for higher loan amounts.
- You prefer a longer repayment tenure (up to 15 years).
Choose an NBFC If…
- You need quick loan approval with minimal documentation.
- You don’t have collateral but need a higher loan amount.
- You need flexible repayment options and an extended moratorium period.
- You are okay with slightly higher interest rates for hassle-free processing.
The Hidden Costs: What Students Often Overlook!
Before signing any loan agreement, make sure you check:
- Processing Fees: NBFCs charge a percentage, while banks have a fixed fee.
- Forex Markups: If you take a loan in INR but pay in foreign currency, check conversion charges.
- Late Payment Penalties: Always know the penalty in case of delayed EMIs.
- Prepayment Charges: Some NBFCs charge fees if you want to close your loan early.
Student Loan Pro Tips from Study Abroad Experts
- Start early! Don’t wait till the last moment—loan approvals take time.
- Compare multiple options. Use education loan comparison tools to check interest rates and terms.
- Negotiate your loan terms. Many students don’t realise that you can negotiate for a better deal.
- Check forex exchange rates. If your university asks for tuition in dollars, check which lender offers the lowest conversion charges.
- Read the fine print! Don’t just look at interest rates—check processing fees, moratorium periods, and repayment terms.
Final Verdict: Bank vs NBFC – Who Wins?
There’s no one-size-fits-all answer. If you want lower interest rates and are okay with waiting, go for a bank. But if you need quick approval, higher loan amounts, and flexibility, an NBFC might be a better option.
At Lorien Finance, we help students find the best education loan options tailored to their needs. Whether you prefer a bank or an NBFC, we simplify the process so you can focus on your dreams!
FAQs
Can I apply for an education loan from both a bank and an NBFC at the same time?
Yes, but you can only accept one loan. Applying to multiple lenders can increase your chances of approval, but once sanctioned, you’ll need to choose one lender and cancel the other applications.
What if my visa gets rejected after taking an education loan?
Most banks and NBFCs allow you to cancel the loan without heavy penalties if your visa is denied. However, some may deduct processing fees. Always check the refund policy before signing!
Do NBFCs charge interest during the moratorium period?
Yes, unlike banks (which sometimes offer a zero-interest moratorium), most NBFCs charge simple interest during your study period. This means your loan balance will grow even before you start repaying.
If I take a loan from an Indian bank, can I repay it from abroad?
Yes, but some banks may require you to open an NRE/NRO account to send EMI payments from abroad. Check forex conversion fees before deciding!
Can I transfer my loan from an NBFC to a bank later?
Yes! This is called loan refinancing. Many students start with NBFCs for quick approval and later transfer to a bank for lower interest rates after improving their credit score.
Do NBFCs offer tax benefits like banks?
No, only banks qualify for Section 80E tax benefits, which allow you to deduct interest paid on education loans from taxable income. NBFC loans do not offer this benefit.
