Here is a common question for those applying for an education loan: Should you consider an education loan from NBFC or bank? Which one is better: a bank education loan or an NBFC education loan?
Let’s look into some aspects of the past when it comes to this discussion. The education loan market was dominated by banks in India. However, NBFC for education loans have gained considerable market share and today offer an alternative when it comes to speedy disbursal of loans, and friendly lending norms for education loans.
This, however, does not mean you as a borrower cannot avail an education loan from a bank. Both these financial institutions have their own terms, processes and features. So, which is better? What is the difference between a bank and NBFC? Well, if you plan to apply for an education loan, you should be aware of the pros and cons of both. Let’s look into the difference between bank and NBFC for loans in detail.
Comparison
Bank
NBFC
Disbursal process
Getting a bank student loan means the student/guardian has to apply for it with relevant documents. After submission, the process involves approval and then disbursal. A seamless process is the most important aspect for the borrower when they are expecting the education loan funds. Even after having long-standing deposit relationships with banks, getting a loan from them is a different ball-game. For loans above a certain level, collateral is demanded by banks. There are different requirements too, all of which ensure that the process is followed to the minutest of details. So, often customer convenience and user experience suffer at the hands of banks.
In the case of NBFC education loan the requirement of collateral does not arise if one is taking an unsecured personal loan. The entire process right from application to final disbursal is smooth and without hiccups for borrowers. Since most of the processes are automated, the borrower has a complete idea at each step. This is why today borrowers are knocking on the doors of top NBFCs when they want instant loans. If you want to have a look at how the process works, you can check the Tata Capital website.
Loan tenure
Banks offer comparatively longer bank student loans tenure. For example, A bank may offer you Rs 10 lakh education loan at 12% interest for 8 years or 96 months. The EMI for the bank loan would be Rs 16300 but you will end up paying a total of Rs 15.61 lakh — a full Rs 1.65 lakh more even though the bank’s loan was 2% point cheaper.
Typically, NBFC education loans have relatively shorter tenures. A shorter loan tenure means your EMIs may seem bigger but the total amount, including interest, is paid quickly. For instance, a Rs 10 lakh personal loan for education for 5 years at 14% interest rate means you may pay Rs 23300 per month. This means your total repayment amount over 60 months would be Rs 13.96 lakh.
Interest Rate
Banks charge lower interest rates, but the timing of loan disbursal and the lack of personalized attention are often grey areas. Even if a bank offers 2-3% points lower interest rate than an NBFC, usually stringent rules and sub-optimal processes give rise to tensions for a bank borrower. In comparison, a borrower who has taken a personal education loan from an NBFC is much more relaxed.
NBFCs normally charge a higher personal loan interest rate versus the banks, but that is a small price to pay given the ease of loan processing. This is a major difference between bank and NBFC.
Course flexibility
Banks are giving loans for education, but the cheapest interest rates are always for the top universities and institutes. However, we must know that a large number of institutes in the country and also outside are not part of the so-called preferred bank education loan network.
NBFCs are comparatively relaxed when it comes to institutes and courses both in India and abroad. If you need a personal loan for a course which is not approved/accredited by public or private sector banks, NBFCs are the best option with great customer service and shorter loan repayment tenures. Also, it’s often possible to get higher Education loan eligibility with NBFCs.
Processing Time
Banks take longer for loan approval and processing. The typical time taken is 10-15 working days.
NBFCs process loan faster typically within 5-7 working days.
This brings us to the end of difference between bank and NBFC student loan. Banks and NBFCs serve the same education loan target market. Education loans from NBFC are processed quickly compared to banks and provide higher course flexibility. Banks offer a longer repayment tenure compared to NBFCs. However, this can lead to you paying a higher overall amount despite a comparatively lower interest rate.
Today, education loan borrowers realise that it is more about value than price when it comes to taking a personal loan for education. This is why education loan from NBFCs are becoming the first port of call in tier 2, 3 and 4 cities/towns among students.
HDFC is one of the largest private-sector banks in India. NBFC stands for Non-banking financial company. The NBFC arm of HDFC Bank is HDB Financial Services.
Is NBFC controlled by RBI?
Yes, just like banks, NBFCs come under RBI supervision under the powers granted by the Reserve Bank of India Act, 1934 .
Which is the safest NBFC in India?
Tata Capital is one of the safest NBFCs in India providing quick approval, attractive interest rates, flexible repayment tenure and 24/7 customer support for quick complaint resolution.
Which is better bank or NBFC?
NBFCs are better for faster processing, broader coverage and low CIBIL score approval. Banks are better for lower interest rates and higher repayment tenure.
Is it safe to take an education loan from NBFC?
Yes, NBFCs are regulated by the RBI under the powers granted by the Reserve Bank of India Act, 1934, so it's safe to take an education loan from them after due diligence.
06 May 2025
5 mins read
Previous Post
