• Education Loans

Difference between Private banks, Public banks and NBFCs

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By:CANAM Group
Updated On:Jan 15,2024 03:26 PM IST

Studying abroad is a dream for many, but the costs involved can be a hurdle. Education loans step in to bridge the gap by providing financial assistance for tuition and other expenses, turning those international ambitions into reality. Read this blog to find the right education loan and compare different loan providers based on their interest rates, eligibility, loan amount, and repayment options.

Difference between private banks, public banks and NBFC.webp

India stands second in line with the countries with the most students studying abroad. Concentrated in the big four study abroad destinations, US, UK, Canada and Australia, the number of Indian students studying abroad is expected to rise from roughly USD$1 million as of 2019 to between USD$1.5 - 2 Million by 2025.

The direct spending on studying abroad by Indian students, including accommodation, food and basic living expenses, was calculated at around USD$47 billion for 2022 and is projected to grow by nearly 50%, reaching USD$70 billion by 2025.

These estimations are enough to reflect on the growing number of Indian students migrating to study abroad and how gaining quality international education is turning out to be an expensive affair. While a handful of people might be able to afford their education abroad on personal funding, many others resort to the assistance of education loans to fund their study abroad.

Difference between Private banks, International providers NBFCs.webp

What is an education loan?

An education loan is a type of loan specifically for students to help fund their domestic and international education expenses. The vast career opportunities along with quality research are some of the many reasons to study abroad. Education loans provide financial assistance, making quality higher education more accessible for those struggling. Depending on the lenders, these loans cover tuition fees, travel money, personal expenses and more.

Why apply for an education loan?

There are various things to keep in mind when applying for overseas education and the cost associated with studying abroad is the first thing that comes in mind. Education loans cover more than just tuition fees, assisting students evenly spread their expenses evenly over their study period. Loans work as a long-term investment for the future, with:

Competitive interest rates	Education loans have a lower interest rate than other loan types. Therefore, students need not worry about paying heavy interest on their study loans.
Flexible repayment methods	These loans have various loan repayment methods like standard repayment, income-based repayment and more. Education loan repayment tenures go up to 20 years, depending on the lenders, with at least 6 months of grace period.
Tax benefits	Section 80E of income tax exempts students who have taken an education loan from high interest rates. This helps students save up on their taxes during the repayment term.
Credit benefits	Timely loan repayments help build a strong credit score, which is important for future loans and mortgages.

Eligibility criteria for education loan

The eligibility criteria for education loan approvals vary depending on the different lenders. Here is a list of general criteria typically mentioned to be eligible for education loans:

• The student must be an Indian citizen

• Must meet the minimum age requirement, generally 18 years

• Must have a good academic history

• Students must have a confirmation of acceptance from a reputed institution

• Must be pursuing a course with a promising career prospect

• The borrower or the co-applicant must have a good credit score

Secure & Unsecure Education Loan

Ever wondered why banks ask for cars, property and other valuable assets when applying for loans? This process where borrowers put up their valuable assets as security for a loan is called collateralisation. Since some lenders offer loans without collateral, the loans are categorised based on their need for collateral as:

Secure Loan	Unsecure Loan
Loans that require the borrowers to submit collateral as security to get a loan.	Loans that do not require the borrowers to submit any collateral to get their loan.
They usually have lower interest rates as the collateral assets give a sense of security.	They have higher interest rates due to the absence of collateral security.
Provided by government partnered banks	Provided by Private banks and other Non-Banking financial companies (NBFCs)
Faster and higher amounts of loan sanctioned	Higher amount of loans might call for the need of a co-applicant

Types of international loan providers

Choosing a lender that offers flexible repayment options and competitive interest rates is essential to manage the education loan. There are various banks and companies the borrowers can consider while taking an international student loan. Public sector banks dominate the Indian education loan market with Private banks and NBFCs (Non-Banking Financial Corporations) following up.

There are significant differences between NBFCs, Public and Private Banks from loan schemes to borrowed amount and turnaround time, here is a detailed comparison on the different types of loan lenders and what they offer.

Public Banks	Public banks are financial institutions owned and operated by the government. These institutions primarily focus on public services as they are run by the government. Public banks provide various subsidies, schemes and loans with lower interest rates to make higher studies accessible to all.
Private Banks	These are privately owned banks authorised by the government of India. Private banks offer higher loan amounts, but have higher interest rates when compared to with public banks. Apart from loans, private banks also offer extra services they can benefit from like counselling, financial planning advice, discounts on travel insurance, etc.
Non-Banking Financial Corporation	NBFCs are financial companies that offer services similar to banks but do not hold a banking license. NBFCs are approved and work under the regulation of the Reserve Bank of India (RBI) and offer financial assistance to students planning to study abroad. These companies are flexible when it comes to student profiles and offer loan opportunities to those who may face difficulties in securing loans from public sector lenders.

Features	Public Banks	Private Banks	NBFCs
Ownership	Government owned	Privately owned by shareholders	Privately owned, authorised by the RBI
Interest Rates	Low interest rates, subsidised by the government	Competitive interest rates, driven by the market	High interest rates, depending on the borrower’s credit profile
Eligibility	Career oriented programs at renowned institutions have a higher chance of approval	Long term professional and technical courses that can help bag a high paying career are generally given preference	Unconventional courses like music, fine arts, culinary management, etc. are also considered for loan approval
Loan amount	Lower loan limit, catering to the basic needs	Higher loan limits, covering varied expenses	Higher loan limit, sometimes more than what the banks can offer
Collateral Requirements	Collateral Requirements Secure loans often require for a collateral asset to be pledged	Varies depending on the loan amount, with lower loan amounts not needing a collateral	Often demand for a collateral asset or a co-applicant
Additional Services	Offer loan schemes and subsidies to girl child and other socially challenged	Offer various additional services like, health insurance offers, counselling, etc.	Offer similar value adding services like the private banks.
Benefits	Affordable, wider reach and backed by the government	Competitive rates, faster loan approvals and large loan amounts	Flexible eligibility criteria, higher loan and faster approvals.
Repayment Period	Offer grace period with tenures ranging from 6 to 12 months	Offer grace period with tenures ranging from 6 to 15 months	Offer grace period with tenures ranging from 6 to 12 months

These are only some generic differences between the varied lenders. Factors like processing fees, margin money, etc. also differ depending on the lenders. Students are advised to research and read all the lender specific policies before applying for a loan.

Tips for students planning to study abroad

Here are some general financial and other tips for students planning to study abroad :

• Research about the destination and choose a country and programs that aligns best with the future interest and academic goals.

• Read the course specific policies and eligibility before applying to any university.

• Create a set and realistic budget for the duration of stay and keep track of all the spending and overall finances.

• Apply for financial aids and study abroad scholarships available.

• Gather all the required documents to avoid any last minute hassle while applying for admissions and loans.

• Consider having a co-borrower, with a good credit score and income history as it can significantly help reduce interest rates and increase the chances of loan approval.

Studying abroad is a dream for many, but the expenses associated with it can make achieving this a task. Education loans work as a helping hand by easing financial burdens with varied loan schemes. Students are advised to start early with their research and compare all available options to find the best loan scheme. Students can also connect with India's leading education loan providers through study abroad experts at Canam and explore the various loan lenders and opportunities available.

FAQ

Is it safe to take loan from NBFCs?

Non-Banking Financial Companies are regulated by the Reserve bank of India making them a reliable option for taking abroad education loans. Additionally they also offer flexible loan eligibility criteria and other value adding offers for students planning to study abroad.

What is the maximum loan amount to study abroad?

The maximum loan amount depends on the lenders and their policy, but banks and organisations offer secure loans for up to 1.5 Cr, provided the borrowers meet the loan eligibility criteria.

What are the loan repayment methods to pay back a loan?

Depending on the lenders, there are various loan repayment methods like the standard repayment method, income based repayment method, graduated loan repayment and more. Applicants are advised to consult with banks about their available loan repayment methods.

What is a co-applicant?

A co-applicant is a person who applies for the loan along with the primary borrower, and shares equal responsibility of the loan agreement as they act as a financial guarantee of the borrower to the lenders.

Which loan is better secure or unsecured loans?

Unsecure loans have higher interest rates as compared to secure loans following their high risk due to no security. However good credit scores and other factors like income history might help get lower interest rates.

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Difference between Private banks, Public banks and NBFCs

Table of Contents

What is an education loan?

Why apply for an education loan?

Eligibility criteria for education loan

Secure & Unsecure Education Loan

Types of international loan providers

Tips for students planning to study abroad

FAQ

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Central Queensland University - Rockhampton, North Campus Queensland

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