With increasing number of Indian citizens planning on pursuing education overseas, the number of student loans being sanctioned is multiplying. Though scholarships act as leeway for evading the burden of repaying the loan, financing for studies abroad is quite a daunting task for most families in India. Education loan in India is becoming easier to avail as more and more banks, both private and public, are providing loans at competitive interest rates with flexible and attractive schemes. Education loan interest rates play a predominant role in determining the bank from which a student should acquire the loan. Several other factors such as – Repayment period, Processing Fee, EMI, Margin, Loan amount sanctioned, Collateral security, Moratorium period also play a role in deciding the bank from which you should consider availing a loan.
Educational loan interest rates
Public Banks rate of interest is usually 1% to 2.5% lower than Private banks and NBFCs. The interest rate that public banks charge ranges from 8.5% to 10.5%. If you take an SBI education loan, the interest rate will be 9.5%-10%. Punjab National bank has an interest rate of about 10.15%. Bank of Baroda charges 9.5%-10.3%. Canara Bank has an interest rate of 9.95%-10.45%. On the other hand, private banks have an interest rate from 10.5% to 13.5%, sometimes 14%. Axis bank’s interest rate lies between 10.5%-13.5% (endpoints inclusive for loans with collateral). At NBFCs, the education loan interest rates are usually around 11% to 14.5%. Credila (11.5%-14.5%), Avanse (11.5%-14%), Incred (11.2% to 13%) are some of the NBFCs from which you can take a loan. There are few international NBFCs which can offer loans to international students such as STILT, Prodigy Finance but they have a restriction on the Universities they support. Most of the financial institutions sanctioning educational loans for studies abroad, cover expenses like admission fee, tuition fee, living expenses, book expenses etc.
The amount that is required by you for a loan and which is given to you by the financier varies and depends if you can or cannot pledge collateral security. NBFCs sanction collateral free loans up to 50 lakhs if you want to study in the US, up to 35 lakhs if you want to pursue your education in Canada and up to 20 lakhs in Australia and Europe. There is no restriction on loan amount if you provide collateral. Public banks such as SBI has an official range of 20 lakhs to 1.5 crores but easily goes above that if required. Also, SBI accepts third-party collateral which means if you or your blood relatives don’t have collateral security then someone else can pledge collateral on behalf of you.
Private Banks and NBFCs have 100% expense coverage whereas public banks have a margin (the cost rendered by you) of 10%-20%. SBI education loan has a margin of 10% which means 90% of the cost of the course is financed by the bank.
The processing fee at that public sector banks charge is a fixed amount. SBI has a processing fee of INR 10,000/-. NBFCs charge a certain percentage of the loan sanctioned as their processing fee usually 1 to 1.5% of loan amount. For example, if you are availing a loan of INR 40 lacs then you would have to pay around INR 40,000 + 18% GST on it, totaling to approx INR 48,000, to an NBFC as application processing fee. This is the key drawback of NBFCs.
Level of study programs
All sector banks usually give study loan for abroad for almost all levels of programs such as Bachelors, Masters, Ph.D., etc. Not all banks sanction loans for diploma and certificate courses.
Co-applicant and Repayment period
Private sector banks, NBFCs and public sector banks necessitate the need of a co-signer/co-applicant (parent, guardian, parents-in-law, and spouse). Most private banks and NBFCs demand repayment of full or partial interest during your study period. On the contrary, public banks like SBI are more relaxed by allowing you to repay your loan and the interest amount post completion of your course, the moratorium period being your course duration plus an additional six months. The repayment period for most of the banks is 10 to 15 years.
Which bank should you choose?
Now that you have some idea about the different spectrums of education loan interest rates, loan amount, processing fee and other things at private banks, public banks and NBFCs, you can choose a loan based on your preferences.
If education loan interest rates and processing fee concern you, then you could choose a public sector bank since they have low-interest rates – Education loan in SBI, Punjab National Bank, Bank of Baroda are usually the most sought after.
If you don’t have any property or liquid security i.e. collateral security but then you can approach NBFCs.
If repayment of interest while studying is something that has been bothering you then you should approach public banks as they are more flexible and less stringent as compared to private banks.
And if you are still bewildered, you could go here and create a loan profile to get the right education loan interest rates suited for you!