Education Loan Without Collateral: Which is Better, Bank or NBFC?

"Congratulations on getting into your dream university! Now comes the big question: how do you pay for it when you don't have property to secure a loan?

You have two main options: Banks or NBFCs. Banks are stricter but often cheaper. NBFCs are more flexible but usually cost more. So which one should you pick?

At WeMakeScholars, we've helped thousands of students make this exact choice. In this blog, we'll explain both options in simple terms so you can decide what works best for you."

What is an Education Loan without Collateral?

• An education loan without collateral is a loan in which the student is not required to pledge any collateral as security against the loan amount. The lender assesses loan eligibility based on various other factors, such as the student's academic strength, the co-applicant's financial status, and the university to which the student is applying, among others.

• Many banks and NBFCs offer these education loans without collateral. The interest rates are comparatively higher than those of collateral education loans, due to the associated risk.

Banks offering Education Loans without Collateral

Many banks offer an education loan without collateral. Many public banks and private banks offer education loans without collateral.

Public Banks

Many public banks offer education loans without collateral. Banks such as SBI, BOB, BOI, CANARA Bank, etc. are the top banks among public sector banks that offer education loans without collateral. Each banks have different eligibility criteria that students have to meet to get these loans.

Private Banks

Many private banks also offer education loans without collateral.ICICi, HDFC, AXIS, SIB, and KVB are the top private banks offering education loans without collateral. Like public banks, private banks also have different eligibility criteria that students have to meet to get these loans. 

Unlike public banks, private banks are slightly flexible in certain terms and conditions.

NBFCs offering Education Loans without Collateral

• Like public and private banks, many NBFCs are available in the education loan market that offer education loans without collateral.

• Avanse, Incred, Credila, and Auxilo are the top NBFCs that offer education loans without collateral. The interest rates, eligibility, and repayment terms are different for each lender.  Mostly, the flexibility depends on the student's profile and the co-applicant's financial status.

Below are the factors that students have to consider to choose the best option between an NBFC and a Bank.

Loan Approval and Processing Speed

The processing speed and the loan approval time are one of the key parameters to be considered while choosing the best lender.

Banks

Banks usually take a longer processing time compared to NBFCs. This is due to the stricter documentation, more paperwork, and the background checks that banks take to process the loan.

NBFCs

On the other hand, when it comes to processing, NBFCs are faster than banks. The loan approval is simple with less paperwork and easy verification. Digitization is the main reason for the faster approvals of loans with NBFCs. There were instances in which NBFCs took only a few working days to approve the loan.

Therefore, for faster approval, NBFCs are a better option for students.

Higher Loan Amount without Collateral

Of course, the loan amount is the key factor that students consider while choosing between lenders.

Banks

Generally, banks have a cap for education loans without collateral. Banks can give up to 1 Cr of education loans without collateral. For larger amounts beyond this, banks may require collateral to be pledged to offer non-collateral education loans.

NBFCs

NBFCs can provide up to 1.25 cr of education loans without collateral. This amount may even go up based on the profile of the student and the co-applicant's financial status.

Comparatively, NBFCs offer higher loan amounts than banks.

Interest Rates and Affordability

This is the primary factor to assess the affordability of the education loan without collateral.

Banks

Compared to NBFCs, the interest rates with banks are lower. The minimum interest rate the banks can offer for unsecured education loans will start from 8.15%.

NBFCs

NBFCs charge higher interest rates for education loans without collateral. The interest rate may range from 10.5% and can go beyond. This is because of the risk associated with a higher loan amount without collateral.

Thus, if interest rates are your concern, banks are the best option.

Repayment Terms and Moratorium Period

The repayment flexibility and the moratorium period are to be considered for the post-sanction flexibilities.

Banks

Generally, banks have fixed repayment structures, with fewer chances of customization. The moratorium period may vary for public banks and private banks. Repayment during the moratorium period is exempted for some public banks. While for some private banks, partial or full simple interest has to be paid.

NBFCs

NBFCs provide flexible repayment options. However, the interest(partial or full) is to be paid during the moratorium period.

Generally, financial institutions have a moratorium period of the course duration, plus up to one year. The repayment tenure may range from 10-15 years. This primarily depends on the profile of the students, the need, and also the co-applicant financial status.

Eligibility Criteria and Co-applicant Requirement

The loan approval maximum depends on this factor.

Banks

Banks have stricter eligibility criteria compared to NBFCs. Require strong academics, a good co-applicant, etc. However, SBI, under the global ed-vantage scheme, offers a non-collateral education loan without a co-applicant, with stricter loan eligibility.

NBFCs

NBFCs are more relaxed in this category. They accept a wider range of universities, slightly flexible with certain eligibility criteria.

Comparison between Banks and NBFCs

Considering the above factors, students can choose the best option for an education loan without collateral.

• In essence, if interest rates are your priority, students can choose banks.

• If looking for a higher loan amount and flexible repayment terms, NBFCs are the best option.

Students' Success with WeMakeScholars

"I got my education loan through WeMakeScholars, and I can't thank Rimsha enough! She was so patient with all my questions and always got back to me quickly. Having someone guide you through this whole process really makes a difference.

One tip for other students: always check the loan amount the bank approves before you sign anything. What happened to me was that SBI made a mistake with currency rates and also calculated my tuition fees wrong, so I got less money than I should have.

WeMakeScholars did their job perfectly, but banks can make errors too. So just double-check their math to avoid any nasty surprises later!" - Devika Ravi.

Conclusion

The best education loan without collateral can be determined by assessing the various factors of the banks and NBFCs. In this blog, we have discussed what are the major factors to consider while choosing the best option for an education loan without collateral. Students can use these parameters and compare lenders to choose the right fit for them.

An education loan sanction is crucial for funding the education of many students. However, students often struggle to get their loans sanctioned without the right guidance. 

WeMakeScholars can help you in such situations. Our team is dedicated to assisting students in receiving education loan approvals on time. Contact us and get the best education loan deal today.