Education Loans From NBFCs: Pros, Cons & Applying Online

There are two basic types of education loans – Secured and Unsecured loans.

Secured Loans - A secured loan, as the name suggests, means that the financial institution will offer a loan that is backed or ‘secured’ by an asset or security. Securities that are usually accepted by institutions are real estate property, government securities or similar assets. Secured loans are ideal for buying a car or a house, both of which will be held as collateral or security against the loan. Secured loans are less common than education loans. However, they do possess advantages that make them lucrative:

• Credit score will matter less, as collateral is in place.
• Higher borrowings are permitted owing to the presence of collateral.
• Longer loan payback durations are permitted.
• Most important of all, interest rates are lower for secured loans.

When you think of an education loan, you immediately think of a bank. However, in the current day scenario where most public sector banks are struggling to deal with NPAs (Non-performing Assets), especially in the education loan category, banks are becoming more & more stringent in their loan offerings. NBFCs (Non-Banking Financial Corporations) offer an alternative. The major difference between a bank and an NBFC would be that banks lend money to debtors using funds of those who have deposited money with them, while NBFCs borrow money from investors, financial institutions & banks to lend money to a debtor. NBFCs have fewer regulations, meaning more flexibility with their customers.

A subsidiary of the HDFC Ltd, Credila is India’s first dedicated Educational Loan-focused NBFC. Credila has been around since 2006. 

Important figures

• Current Base Rate of Interest: 11.85%
• Type of Interest Rate: Floating and may change every year
• Minimum Loan Amount: Rs. 1,00,000
• Maximum Loan Amount: No cap but must meet Credila’s criteria
• Maximum Loan Tenure: 12 Years
• Processing Fees: 1% of Loan Amount, usually

Other key advantages that the company boasts of include a potential exemption in tax under Section 80E and the company also offers loans against properties that are mortgaged with its parent company HDFC Ltd.

Founded in 2012, Avanse is also a specialized NBFC targeting education loans. It is an associate company of Dewan Housing Finance Loan (DHFL) Ltd. The Company offers several custom made loans such as pre-admission loans and pre-visa loans, that banks don’t offer.

Important Figures

• Current Base Rate of Interest: 11.5%
• Type of Interest Rate: Floating and may change every year
• Minimum Loan Amount: Rs. 1,00,000
• Maximum Loan Amount: No cap
• Maximum Loan Tenure: 10 Years
• Processing Fees: 1% of the Loan Amount, usually

The loan amount also covers essential living costs (but this figure shouldn’t excel 20% of the total loan amount). Caution deposit and fees of the like are covered to the tune of up to 10% of the Loan Amount. Travel expenses are also covered for students traveling abroad. 

This Mumbai based NBFC offers loans for Housing, SME Loans, Personal Loans, and Educational Loans and has been in existence since 2016. The organization offers education loans to students studying in India as well as those going abroad. Get more detail @ Incred Education Loan

Important Figures

• Current Base Rate of Interest: 12%
• Type of Interest Rate: Floating and may vary every year
• Minimum Loan Amount: Rs. 2,00,000
• Maximum Loan Amount: Rs. 1,00,00,000
• Maximum Loan Tenure: 15 Years
• Processing Fees: 1% of the Loan Amount, usually

This the latest NBFC Firm to come into existence and was established in 2017. They specialize in educational loans for students studying both in India and abroad.

Important Figures

• Current Base Rate of Interest: 12.7%
• Type of Interest Rate: Floating and may vary every year
• Minimum Loan Amount: Rs. 1,00,000
• Maximum Loan Amount: No cap
• Maximum Loan Tenure: 10 Years
• Processing Fees: 1% of the Loan Amount

 What are the factors considered by the NBFCs while approving an unsecured education loan?

In unsecured loans, there is a higher risk involved for lenders compared to the loans with collateral. Therefore, NBFCs take into consideration several factors before approving the loan. These factors are:

• The applicants' academic details (10th, 12th, graduation degree and certificate, test scores, etc.)
• The co applicant’s income profile with proof (Income tax returns, salary slips, CIBIL score, etc.)
• Target country and course for higher education.

• The biggest advantage of borrowing from an NBFC is that they cover a wider range of institutions and courses from across the globe, as against banks, who restrict their loan offerings based on the course, destination, etc
• With fewer regulations in place than a bank, NBFC’s lending process is far more relaxed and is often much faster in sanctioning & disbursing loans. They are also more likely to offer a range of customized services that may be specifically suited to certain students.
• A lesser amount of paperwork is required to obtain a loan
• NBFCs usually don’t cap the amount of loan that they can offer a student. Based on the course requirements & collateral value provided they can offer loans to the tune that the student is requesting. Banks, on the other hand, have an upper limit on the amount they can offer a student.

• Naturally, since NBFCs borrow money to lend, their interest rates are likely to be much higher than that of banks
• No interest subsidy, which the Government of India offers, will be passed on to borrowers from a typical NBFC.
• Interest rate typically changes as per the market conditions.
• A few countries don’t accept education loan from an NBFC for visa approval.

GyanDhan is a student-centric IIT-alumni initiated startup, who work tirelessly towards easing the loan process. And in order to make sure that financial aid is not a deterrent to any student’s dream of studying abroad, GyanDhan has partnered with several banks and NBFCs such as HDFC Cedila, Avanse, InCred, and Auxilo and takes care of the complete loan process - application, sanction and even the follow up the process, in case of any roadblocks. GyanDhan has helped hundreds of student get education loans from NBFC’s even in situations when it was a time-critical case.