BHUBANESWAR: Manushi wanted to pursue a course in culinary arts in a prestigious college in USA. But, the high course fee structure of obtaining the degree was the biggest hurdle for her family.
Manushi’s parents, who were open to taking an education loan, approached their bank. They had a perennial relationship with the bank, but much to their surprise, the bank rejected their application. The course in question was not in their list of approved courses, and hence the heartburn.
Some of her friends advised them to approach a Non-Banking Financial Company (NBFC). Manushi’s father was, however, unwilling to approach a non-banking finance company, as all their financial transactions had only been with Public Sector Banks (PSB).
This reluctance to approach an NBFC is not all too uncommon. While choosing the right type of education loan is an arduous task, the cobwebs of confusion, whether to opt for NBFCs or banks, is no less laborious.
For those like Manushi, who are planning to apply for education loans, here’s a closer look to help you weigh the pros and cons of banks and NBFCs, and procure the right loan.
Banks and NBFCs have their own guidelines while offering educational loans. While banks are reluctant to offer loans for offbeat courses like photography and filmmaking, NBFCs are comparatively relaxed in this regard, and offer education loans to a wider selection of courses across the globe.
Non-banking financial organisations also offer loans for up to a 10-year tenure. So, if you are seeking to take up an offbeat course or country for your higher education, you are better off taking a study loan from an NBFC.
Non-banking financial companies generally take less time to process education loans than Public Sector Banks. However, Private Sector Banks provide quick approval of loans. Public sector banks, on the other hand, provide loans based on the existing customer relationship. If you are applying for a loan to pursue an education in a government college or for a professional course approved by the University Grants Commission, you can expect a quick loan approval at both banks and NBFCs.
Both banks and NBFCs take collateral, depending on the course and institute. For government colleges and professional courses, collateral is not asked. In all other cases, collateral is required.
Interest rates, other charges
PSBs have competitive interest rates as compared to private banks and NBFCs. But other charges like processing fee and pre-closure charges will be higher for NBFCs. The processing fees charged by banks range between 0.5-2 per cent, while NBFCs charge between 1-2 per cent.
If you take a loan from a bank, then you will automatically become eligible for income tax deduction under Section 80E, which means the interest you pay to the bank can be included in your non-taxable income. But there are no clear tax exemption guidelines in case of NBFCs.
Both NBFCs and banks have their own set of pros and cons. For instance, Banks have concessions for women loan borrowers and students with merits, unlike NBFCs, which have a uniform interest rate for all. The best way to pick the best choice would be to weigh in the advantages and disadvantages of both and then apply for the right loan.