Education Loans From NBFCs: Pros, Cons & Applying Online

Before going into education loans from NBFCs, understanding the two loan categories available from banks, NBFCs, and almost all financial institutions is crucial. There are two basic types of education loans – Secured and Unsecured loans.

1. 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 include real estate property, government securities or similar assets.
 

Here the points that make secured loans lucrative:

• Monthly income 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.
   

2. Unsecured Loans - In unsecured loans, lenders offer a loan without any security or collateral. This is, naturally, a higher risk proposition for them, and so they tend to offer higher interest rates and fees for such loans.
 

The Advantages of Obtaining an Unsecured Loan Include:

• Your assets are secure in case things go awry.
• Ideal for students and applicants with a steady income
• Less documentation and faster processing

• NBFCs (Non-Banking Financial Corporations) offer an alternative to banks in financing for the customer’s needs. 
   
• The major difference between a bank and an NBFC is 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. Read more about education loan from NBFCs vs Banks.
   
• NBFCs have fewer regulations, meaning more flexibility with their customers.
   

A subsidiary of HDFC  Ltd, HDFC Credila is one of the prominent NBFCs in India for Unsecured education loans. Credila has been around since 2006. 

Important figures about education loan offered by HDFC Credila

• Current Base Rate of Interest: 11% - 13%
• 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.

Another key advantage is that the company has 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 provide.

Important Figures about education loan offered by Avanse:

• Current Base Rate of Interest: 11% - 14%
• 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:  15 Years
• Processing Fees:  1-2% of the loan amount

The loan amount also covers essential living costs (but this figure shouldn’t excel 20% of the total loan amount). 10% of the loan amount covers the tuition and other fees. Travel expenses are also included. 

This Mumbai-based NBFC offers loans for Housing, SME, personal purposes, and education. It has been in existence since 2016. The organization offers education loans to students studying in India as well as abroad. 

Important Figures about education loan offered by InCred:

• Current Base Rate of Interest: 11.5-15%
• 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: 1-1.5% of the loan amount.
   

This  NBFC firm  came  into existence  in 2017. They specialize in domestic and abroad education loans. 

Important Figures:

• Current Base Rate of Interest:  12-13.5%
• 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: Up to 2% of the loan amount.
   

• Eligible courses
• Maximum amount available
• Availability of Tax benefits
• Repayment conditions
• Documents required
• Processing fee and other charges
• Case specific requirements

It is wise to consult an education agency when seeking a loan from NBFCs. Applying alone, the applicant has to deal with a lot of data, which may lead to confusion. Another key problem is that some NBFCs may cover facts to convince applicants to take a loan from them. So it’s  better for the applicant to consult an education agency with a good reputation and minimal charges.

• Educational consultants are usually partners with NBFCs, and can help ace your loan application process
• They educate you about the typical loan process & clear doubts you may have about the loan processing or payment 
• An experienced agency foretells the upcoming mistakes you can avoid 
• They evaluate your profile thoroughly and suggest the best-suited NBFC lender for your needs.

Compared to secured loans, there is a higher risk involved for lenders when giving unsecured loans. 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.

Benefits of Abroad Education Loans by NBFCs:

Here we list 12 advantages of an NBFC loan for education abroad that would justify your move for an abroad education loan from an NBFC: 

1. Eligibility criteria is quite simple!  Since academic merit is a main hurdle for the majority of students to avail education loans from public & private banks, NBFCs on the other hand is the easy path. 
    
2. More study options- Study options are so flexible, and you can study any course you want. Since there are no course restrictions, the student can choose from a wider array of subjects.
    
3. Complete cost-coverage- There is no margin money for NBFC loans & they cover all the education-related expenses.
    
4. Simpler procedure- The terms and conditions are not complex. An applicant can easily comprehend the application process, which reduces the chances of confusion.
    
5. Quick loan disbursement- NBFC loans are comparatively faster processed and disbursed. It saves the applicant’s time and anxieties
    
6. Standard processing fees- The processing fee charged by NBFCs are typically 1-2 % of the loan amount. It is compatible with that of banks; NBFCs do not tax sky-high fees for loan processing.
    
7. Unsecured loans with better amounts-The applicant can easily avail an unsecured loan through NBFCs. The amount limit for unsecured loans is higher than that of public and private banks. So it is wiser to consider an NBFC if the applicant can afford unsecured loans only and the required amount is higher than the bank limits.
    
8. No limit for loan amount- NBFCs generally do not fix a limit for the loan amount. On the other hand, public and private banks have a limit for the loans, be it secured or unsecured. Students who need a big amount find it a boon that NBFCs offer the money they want.
    
9. Convenient Moratorium period- Moratorium period for loans from an NBFC is conventional and practical. It is typically between 6 months to 1 year after study or till the student gets a job. Read more about moratorium period in education loans here.
    
10. Longer repayment periods- Loan repayment period is longer for loans taken from NBFCs. The student need not to worry about repayment while studying. The NBFC loan repayment period is compatible with that of banks. Read more about planning your education loan repayment here.
     
11. Merit based loans-NBFCs readily give loans to students who have excellent academic records and students who have chosen a course with higher chances of employment. Student’s academic prospects and employability after the course prove to be the effective way for a loan.
     
12. Pre approval (not applicable to all lenders)- Some NBFCs offer pre approval of education loans, which means that the student’s application is accepted even before their admission. Pre approval saves a lot of time and gives financial assurance.

Drawbacks of Education Loans from NBFCs:

• Higher interest rates- Compared to the public and private banks, the interest rates are higher for loans from NBFCs.
   
  • Banks lend the money deposited in them, so they can charge a lower interest for the loans. Because NBFCs lend the money they receive from investors, they charge higher interest for the loans in order to pay back the investors. 
  • For banks there is Marginal Cost of Funds-based Lending Rate (MCLR) that determines the interest rates. Unlike the banks, the MCLR is not applicable for NBFCs, and that’s why they have a high rate of interest. 
  • View education loan interest rates by various banks here.
     
• No interest subsidies- From banks, the student may get interest subsidies. NBFCs do not offer interest subsidies, which means there is no possibility for any reduction in loan repayment.
   
• Interest rates can increase- The interest rates are subjected to the variations in the market. There is a chance of increase for the interest rate for NBFC education loans.
   
• Have charges apart from processing fee- Apart from the processing fee, NBFCs have other charges, like bounce charge, swap charge, prepayment charges, penalty charges, pre-closure charge, etc. that may be higher than loans from public or private banks.   
   
• No special concession for women- Banks have a lesser interest rate and other privileges for women borrowers, whereas NBFCs do not provide them.
   

Based on the data from the table, we can round 7 situations where an NBFC is the perfect option for an education loan:

1. The applicant fails to meet the academic scale and other criteria set by the bank
    
2. Student is in an urgency that they need a loan as quick as possible
    
3. Borrower wants to study a course (maybe a recently introduced one) not included in the bank’s list (Sports Journalism, Creative Writing, Fashion Design, etc.)
    
4. Loan applicant want to study in a university not listed by the banks
    
5. Lack of enough documents for a bank loan
    
6. Need for a full-coverage of study related expenses (which is higher than bank limits) with collateral
    
7. You want an unsecured loan of a bigger amount

Documents for Education Loan from NBFCs:

From Applicant

• Identity Proof: PAN/ Passport/ Driver’s License/ Voter ID card or other valid government issued identification document.
• Address: Recent copy of Telephone Bill/ Electricity Bill /Water Bill/ Piped Gas Bill or copy of Passport/ Driving License/ Aadhaar Card.
• Passport 
• Past Academic Record- Undergraduate, 12th, and 10th results
• Entrance Exam Result (e.g. GMAT, GRE, TOEFL, etc.)
• Proof of Admission: Admission Letter. Conditional admission letter is also applicable.
• Statement of cost/expenses.
• 2 passport-size photographs.
• Loan A/C statement of one year, if there is any previous loan from other Banks/ Lenders.
• 3 months salary slip if the student has work experience

From Co-Applicant

• ID and Address Proof ( PAN or Aadhar/Any)
• 3 months salary slip (if salaried) or Business address proof
• Latest 6 months bank statements
• ITR 2 years / Form 16 for 2 years
• Own residence proof (E-Bill)
• Passport Size Photograph

From applicant’s Mother-

• Address Proof -Aadhar and Pan Card 
• Passport size photo
• Contact Number

There are other case specific documents too. For example, if the co-applicant is a doctor (or any other similar profession), he has to show Certificate of Qualification also. Check well with your NBFC to avoid last minute rush for documents.

As mentioned earlier, there are several advantages and disadvantages of taking an education loan from NBFCs. It is always recommended to consult the private banks before NBFCs for loans.

Government banks only offer unsecured loans up to INR 7.5 Lakhs, which is usually insufficient. Private banks have several benefits over the NBFC, such as tax benefits, lower interest rates etc. However, for faster loan approval and more flexible documentation, NBFCs should be a preferred choice. 

• GyanDhan is a student-centric IIT-alumni-initiated startup that works tirelessly towards easing the education loan process.
   
• Education counseling and loan application through GyanDhan is FREE for students.
   
• To ensure 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 Credila, Avanse, InCred, and Auxilo.
   
• GyanDhan takes care of the complete loan process - application, sanction, and even the follow-up process, in case of any roadblocks.
   
• GyanDhan had helped hundreds of students get education loans from NBFCs even when it was a time-critical case.
   

For more information related to education loans from NBFCs, contact us. 

Some of the best Non-Banking Financial Corporations (NBFCs) in India that focus on lending educational loans are:

• Incred
• Avanse
• HDFC Credila
• Auxilo

The interest rate for an education loan from an NBFC may range from 11-13.5%.

The repayment duration for education loans from NBFCs varies according to the lender's policies and the loan amount. Repayment terms of up to 15 years are possible, and certain NBFCs may offer flexible repayment options based on the applicant's financial profile.

Yes, an education loan balance transfer from a NBFC to a bank is possible.