Government banks or NBFs? Important things to consider before getting an education loan & nbspPhoto Credit: & nbspYouTube
With the ever-increasing cost of higher education, Indian households spend up to 13% of their annual income on college needs for their child, according to fintech company GrayQuest. This tends to increase significantly when there is more than one child in a family. Increasingly, parents are turning to educational loans to provide their communities with quality higher education.
With finch, public sector banks, and private corporations, most parents borrow from PSU banks because the interest rates are lower and the repayment terms are better compared to fintech and non-bank financial firms (NBFCs).
Public banks like Union Bank of India, Bank of Baroda and State Bank of India charge 6.8%, 6.85% and 6.90%, respectively, while private banks like HDFC Bank, Axis Bank and ICICI Bank Charge interest of 9.55%. 9.70% and 10.50%, respectively.
The interest rate charged by government banks will always be lower as NBFCs borrow without a deposit and then add up their margin, which is often based on the borrower’s risk profile and certain other factors.
The repayment schedule of public lenders among all credit institutions is often the most liberal. For example, the maximum repayment period for the Bank of Baroda and Union Bank is up to 15 years, which is almost never the case with fintech companies and NBFCs.
The approval process and time it takes to sanction the loans is undoubtedly easier for NBFCs and fintech companies compared to public lenders. Most private bank education loans, however, are secured against collateral from the borrower. While banks approve loans based on admission acceptance status, certain NBFCs like HDFC Credila offer pre-approved educational loans even before the student begins the admissions process navigate to this web-site
The process of getting education loans from banks requires more time and multiple visits to branch offices to fill out applications, forms, etc. compared to NBFCs and fintech companies. Banks are far more conservative than NBFCs and fintech companies when evaluating an education loan application. It can be more difficult to get a new age professional course loan from banks than from private finance companies. For example, Union Bank of India offers a maximum loan of up to Rs 1.5 lakh for professional or professional development courses.
The interest rate shouldn’t just be a criterion for borrowers
While interest rates greatly influence the decision of borrowers, other criteria such as the repayment term, the margin amount and the moratorium period should also be considered when applying for an educational loan from a bank, NBFC or fintech company.
The interest component repaid by the borrowers of the educational loan is also tax deductible in accordance with Section 80E. However, this tax deduction is only valid for 8 years from the start of the loan repayment. Hence, borrowers should aim to complete repayment of their education loan by 8 years in order to get the maximum benefit from the tax withholding. The borrower needs to remember that the main component or loan amount is not tax deductible.