Traditionally banks have been the sole lending institutions for abroad education loans. However, if we go back in time, there were multiple institutions for lending processes even in ancient India. Times began to change when private sector banks started expanding, but the last mile inclusion and broadening of the lending process was still a far-fetched dream for a developing country like India. NBFCs inception into the financial system completely turned the table. Now they happen to be the best solution for abroad education loans and any lending process in general. Let’s take a look at NBFC education loans.
NBFCs are structured by keeping in mind the financial capability of a commoner and its financial needs. By conflating these two, NBFCs have become a one-stop solution for financial inclusion, credit flow, faster loan processing, and many other factors. The need for having a robust network of NBFCs was inevitable, provided India’s gigantic population and passing on the benefits of India’s economic prosperity.
Banks or NBFCs? What’s the best option for abroad education loans?
Banks and NBFCs both provide education loans for abroad education. Banks in the public sector have stringent norms and only provide secured abroad education loans, i.e. the one backed by collateral. However, private banks and NBFCs offer both secured and unsecured loans. But private sector banks, too, have lower limits for lending in unsecured loans than NBFCs. This is where NBFCs come to the rescue as they provide large loan amounts even in the unsecured loans category. Thus helping those who can’t afford to pledge collateral and want a considerable amount as an abroad education loan.
NBFCs do have higher lending limits, but there is a downside to it too. The interest rates are usually high with an NBFC. The non-availability of tax benefits and government schemes are also among the downsides of NBFC loans. But on average, a loan with an NBFC is helpful for those who are meritorious and can’t afford to get a loan from Private and Public Sector Banks owing to the strict lending terms and conditions. NBFCs also make a lot of amends in lending when they feel the need to do so. For deserving students, the terms and conditions are altered to make the loan more feasible.
NBFCs have different offers for different loan applicants. The criteria are very flexible when adjusting the loan tenure, maximum loan amount, repayment, etc. One of the crucial aspects of taking a loan with an NBFC is the enhanced credit limit, but the level of scrutiny is a bit higher than the private and public sector banks. The banks have traditionally relied on the list of colleges and IELTS, GRE, GMAT, TOEFL scores.
However, the NBFCs have broader criteria to assess the eligibility of a loan applicant. They will check the entire academics of the applicant, the income proof, credit score, the country where the university or college is located, etc. Thus meeting this broad set of criteria is very important for getting the loan from an NBFC. There are certain exceptions too within the NBFCs as some of them may provide tax exemptions too. For instance, HBFCs Credila claims to offer tax exemptions under section 80E of the income tax act. However, the exemptions are available only to those NBFCs that have been notified by the Central Board of Direct Taxes. Thus, one should confirm first with the NBFC.
Advantages and Disadvantages of loans from NBFCs
There are both advantages and disadvantages of loans from NBFC. But there is no uniform rule that a specific criterion is good or bad. One condition for a loan can be advantageous to some loan applicants while it can be disadvantageous to others. For instance, a high interest rate might not be a feasible condition for an applicant with collateral to pledge, but for students who come from a weak financial background, even with a high interest loan can be a game-changer for them. Since most of the private and public sector banks are still reluctant to lend huge amounts without collateral, NBFCs have been a lifesaver for sure. For the sake of clarity, there are some common advantages and disadvantages that will help the loan applicants in ascertaining whether to take the loan from an NBFC or not.
- Almost all the NBFCs don’t put a cap on the maximum lending amount. This helps students take loans for higher amounts without having the need to pledge high value and high liquidity collateral.
- Banks have relatively strict criteria when it comes to sanctioning loans for higher education at foreign universities. They will not lend for all the institutions and maintain a list of institutions and countries for which the loan will be sanctioned. However, there is no such bar in the case of NBFCs.
- The processing time is also less for NBFCs than banks.
- The amount of paperwork is also less in NBFC.
- Loans can be customized, and there is no fixed structure.
- One of the disadvantages is the absence of subsidies provided by the government based on different criteria.
- The interest rate on education loans is higher than banks since NBFCs don’t have billions to lend, unlike banks.
- Tax exemptions can’t be claimed against the loans provided by NBFCs. However, the government is mulling over it, and there might be tax exemptions from NBFCs loans in coming years.
- No provision for a fixed interest rate and all of them have floating interest rates.
- Few countries don’t approve visas on loans from NBFCs.
Choosing the right loan has both present and future consequences. Even a slight change in the interest rate can make a considerable difference in the overall amount on high loan amounts. So, it’s advised to weigh all the options and then get a loan. Many students take loans from NBFC but later bear financial consequences because of the high loan amounts. Loans from NBFCs have both advantages and disadvantages, but NBFC has certainly changed India’s credit culture.
Now more students can go abroad for higher education without having the need to have a solid financial background. It’s in the best interest of the students to take help from experts in the field to understand the nitty-gritty and fine prints of the terms and conditions of the loans. Making an informed choice helps students in averting future financial setbacks.