Education Loan from NBFCs vs Private Banks - Which is Better in 2025?

A major percentage of students who do not have any collateral to take a loan against it opt for private education loans without collateral. Private banks and non-bank financial companies (NBFCs) are the two primary lenders of private education loans without collateral, through which an education loan of up to 1 crore can be availed. 

These private lenders do not need students to put up any form of security as collateral for the loan; nonetheless, the co-applicants' income and creditworthiness are important factors in determining whether or not they are qualified for this type of loan.

But, the question you may ask is which one is better, NBFC education loans or education loans through private banks? So, don't worry, this article will give you a detailed comparison of the unsecured education loan details of both private lenders. 

What are the NBFCs and Private Banks?

Non-Banking Financial Company (NBFC)

NBFCs are financial institutions which provide loans and financial services, but they are not licensed in full as a bank. The common NBFCs that provide study-abroad-associated loans are 

• Credila 
• InCred
• Avanse 
• Auxilo etc.

Private Banks

They are commercial banks that are privately owned and under the control of the RBI. Some of the popular banks where people take education loans include

• ICICI Bank
  
• Axis Bank 
  
• IDFC
  
• South India Bank(SIB)
  
• Kotak Mahindra Bank
  
• Karur Vyshaya Bank(KVB) 
  
• Yes Bank, etc.

The reason why many students go to Private Banks in the name of Education loans is that they have secured loans with competitive interest rates.

How are NBFCs and Private Banks different?

Non-Banking Finance Companies

A non-Banking Financial Company or NBFC is authorised to conduct transactions similar to a bank, like lending for abroad education loans without security, insurance policies, etc. However, they do not hold a banking license. This means that they cannot perform the following activities that banks can.

1. They cannot accept Demand Deposits.
2. They cannot issue cheques drawn on themselves.
3. They cannot indulge primarily in Agricultural, Industrial activity, sale-purchase, construction of an immovable property, etc.
4. They can provide banking services to people without holding a banking license.

All of the above points may have made it clear to you why NBFCs majorly provide unsecured education loans.

Private Banks

Private banks like Axis Bank, ICICI Bank, etc, are essentially private financial institutions that offer banking services to the public. A major percentage of shares in private banks are owned by private companies rather than the government. Their way of functioning is more or less similar to public/government banks. 

The main objective for which NBFCs are established is to grant credit to the poor section of society, whereas banks are the financial intermediaries authorised by the government to receive deposits and grant credit to the public. NBFCs are regulated by the Reserve Bank of India.

From a student's perspective, there is not much difference when it comes to education loans. They both offer unsecured education loans and have somewhat similar offerings.

How do you know whether your chosen university falls under the private bank's university list or not? Get in touch with our team at WeMakeScholars. We work with all major private banks and have access to their prime university list. 

Difference between NBFC Education loans, and Pvt bank education loans

Now that you know the basic difference between NBFCs and private banks, in order to know which lender is better, we will compare their loan terms on the following factors.

• Education loan interest rate
  The interest rates offered by NBFCs can be slightly higher as compared to those offered by private banks. However, the education loan interest rates of NBFCs for unsecured education loans are variable, depending on the quality of a student’s profile. 

• Education loan amount
  The maximum loan amount offered by NBFCs and private banks depends on the country and the university, respectively. While both NBFCs and private banks fund courses in major countries like the USA, Canada, Australia, etc, private banks have a list of universities with them only for which they only approve an unsecured loan. 

  • For example, an NBFC can provide an unsecured education loan of up to 60 lakhs to a student going to the United States, but only 20 lakhs to a student going to Germany.
  • Likewise, a private bank can provide an unsecured education loan of up to 40 lakhs to a student going to a top university, and only up to 20 lakhs for an average university.

• Eligible courses
  When it comes to funding courses abroad, there is a major difference between the policies of NBFCs and private banks. While NBFCs do not fund UG courses at all, private banks do fund UG courses if they're from a top university.

Apart from these major differences, there are many other differences which are given below in the table:

NBFCs Edu-Loans vs Private Banks Edu-Loans: A Quick Comparison Table

Feature / Factor	NBFCs	Private Banks
Interest Rate	Usually higher (11–16% approx.)	Lower for secured loans (9–13% approx.)
Processing Time	Very fast (2–7 days)	Medium (7–15 days)
Loan Amount	High amounts even without collateral	High amounts with collateral; restricted amounts without collateral
Collateral Requirement	Not mandatory	Often required for large loan amounts
Repayment Flexibility	Very flexible, custom-designed plans	Standard repayment structures
Coverage of Countries/Courses	Very broad	Sometimes a restricted list
Tax Benefits (Secured Loans)	Not Available under Section 80E (Except Credila)	Available under Section 80E
Eligibility Strictness	More flexible	Stricter (income, academics, collateral quality)

It is very important to make an informed decision when you fund your higher studies with education loans. The financial team at WeMakeScholars understands this concept and accordingly assists all our students. Request a callback today to avail our help and assistance with your education loan process.

Benefits of taking an unsecured education loan from private lenders and NBFCs

Securing an abroad education loan without security from NBFCs and private banks is an easier process when you compare it with the education loan procedure of nationalised banks and PSUs.

Some of the factors that make obtaining education loans from private banks and NBFCs easier are listed below.

• Faster & easier disbursement: 
  Since an abroad education loan without security does not require students to pledge collateral security of any kind while applying, the disbursement process of a non-collateral education loan from NBFCs becomes much faster. This means that additional procedures like obtaining a legal opinion from a lawyer and getting the property evaluated by a competent authority are skipped. To sum it up, the disbursement of a non-collateral education loan from NBFCs does not take more than a week.
• Less paperwork: 
  In the case of an abroad education loan without security, where there is no security involved, the amount of paperwork that is to be done by the candidates and the NBFCs automatically comes down. Hence, this speeds up the process as well.
• Elimination of Loan Margin: 
  An abroad education loan without security from NBFCs generally funds 100% of a candidate’s higher studies. This means that there is no loan margin set for education loan applicants by NBFCs.
• The rest of the factors, like moratorium period, repayment terms, etc, are more or less similar. To answer your question, which is better for unsecured education loans, private banks, or NBFCs? The answer would be Private banks if your loan requirement is under 40 lakhs. 

Pros and Cons of NBFCs Education  Loans

Let us now understand the advantages and disadvantages of NBFC education loans.

 Pros

• Fast approval and disbursement (perfect for last-minute admissions)
  
• Liberal eligibility requirements for the academics and co-applicants.
  
• Increase in non-collateral loans.
  
• Practically all the countries and courses are covered.
  
• Individualised payment solutions.

Cons

• Interest rates that are higher than those of the private banks.
  
• No tax concessions in terms of 80E (Except Credila)
  
• Better repayment obligations even in the course of study.
  
• The cost of processing is normally greater.

Advantages and Disadvantages of the Private Banks

Let us now know the advantages and disadvantages of private banks.

Pros

• Reduced interest rates, particularly on secured loans.
  
• Under Section 80E, there are tax benefits.
  
• Brand loyalty and RBI control.
  
• Extended repayment period (15 years maximum)
  
• Strong collateral-backed applications will be better served.

Cons

• Lower processing speed than NBFCs.
  
• Tougher eligibility, documentation.
  
• Does not finance some courses and countries.
  
• Reduced approval without security.

The selection of the right lender is among the most crucial decisions that you will make during your plan to study abroad. Indian students tend to compare NBFC and Private Banks when using Education Loans since these two have flexible lending programs, quick turnaround and large loan values. The terms, interest rates and eligibility criteria may differ greatly.

In Which Cases Should You Select an NBFC?

An NBFC is a better option if:

• You don’t have collateral
  
• You need quick loan approval
  
• You are applying to a course or country that is not catered to by the private banks.
  
• You have less co-applicant income, or your school record is mediocre.
  
• You desire some lenient repayment plans.

What Should Be Your Choices of a Private Bank?

Education Loans from private banks are best where:

• You have good collateral to negotiate a low rate of interest.
  
• You desire long-term tax advantages.
  
• You like a lender who is known to be stable.
  
• You would like fewer EMIs and total interest expense.
  
• The bank has an approved list of courses and countries.

NBFCs vs. Private Banks: Which is the best?

No one is the best; it is a matter of your profile.

Choose NBFCs if:

• You must have speedy approval, flexibility and non-collateral financing.

Choose Private Banks if:

• You demand lower interest rates, deductions on taxes, and long-term repayment.
• The majority of students weigh the two alternatives and even go to various lenders to negotiate the best terms. It is up to you, finally, based on the collateral, co-applicant income, and time remaining before you have your visa/fee due.

How can WeMakeScholars help?

Going through WeMakeScholars can help you get some of the benefits:

• Expert Advise
  
• End-to-End Support
  
• Faster Processing Time
  
• Negotiation Support
  
• Digitalized Process

Conclusion

These are the best choices for financing your higher education overseas, both in the NBFC and the Private Banks, which deal with Education loans. NBFCs are flexible, and private banks are affordable. Knowing what is good and bad about them will help you select a loan that will not be bad in terms of financial costs and pressure during your studies. Private banks offer education loans even for UG courses abroad, are a little relaxed about students' age, and can get an education loan without a co-applicant in a certain bank, with tax benefits, etc. 

It is very important to make an informed decision when you fund your higher studies with education loans. The financial team at WeMakeScholars understands this concept and accordingly assists all our students. Request a callback today to avail our help and assistance with your education loan process.