As higher education costs continue to rise in 2025, many students and parents are turning to education loans to bridge the financial gap. While traditional banks remain a popular choice, Non-Banking Financial Companies (NBFCs) have gained significant traction in recent years, offering more flexible lending options tailored to diverse needs.
However, with both options available, how do you determine which is better suited to your circumstances? In this guide, we’ll compare banks and NBFCs for study loans, examining their features, benefits, and limitations to help you make an informed financial decision.
Understanding the Basics: What Are Banks and NBFCs?
- Banks are government or privately regulated financial institutions authorized to accept deposits and lend money. They follow strict guidelines set by the Reserve Bank of India (RBI) and offer a range of financial services, including education financing.
- NBFCs (Non-Banking Financial Companies) are private financial institutions that provide lending services without holding a banking license. They’re known for faster processes, greater flexibility, and customized loan products—especially for students pursuing education in India and abroad.
Key Differences Between Banks and NBFCs for Education Loans
Let’s explore how these two lending options stack up in various vital areas:
1. Loan Approval and Processing Time
- Banks often have longer processing times due to strict documentation and approval norms.
- NBFCs, on the other hand, typically offer faster disbursement and less paperwork, making them suitable for students on tight deadlines.
2. Loan Amount
- Banks may limit loans for domestic schooling to between ₹4 lakh and ₹7.5 lakh without collateral, and require security for amounts exceeding this limit.
- NBFCs often offer higher loan amounts, especially for international programs, sometimes exceeding ₹25–30 lakhs without collateral, depending on the student profile and course.
3. Interest Rates
- Banks offer education loans with relatively lower and standardized interest rates, often linked to the Marginal Cost of Funds-based Lending Rate (MCLR), especially for government-backed schemes.
- NBFCs tend to charge slightly higher rates. However, they may offer flexible repayment terms and customized rates based on the student’s course, institute, or earning potential.
4. Repayment Terms
- Banks frequently give a moratorium period (the course duration plus 6 to 12 months) and offer repayment conditions of up to fifteen years.
- NBFCs may offer more flexible repayment schedules but may require payments to begin earlier, depending on the specific terms of the agreement.
5. Collateral Requirement
- Banks demand collateral for loans above ₹7.5 lakhs (unless under government guarantee schemes like CGFSEL).
- NBFCs often offer unsecured loans for higher amounts, particularly to reputable institutions or meritorious students.
6. Customer Support and Accessibility
- NBFCs typically offer more personalized customer support, online applications, and easy follow-ups.
- Banks might be slower in communication, especially in rural or semi-urban branches.
When to Pick a Bank for Your Schooling Loan
Opt for a bank if:
- You qualify for government interest subsidy schemes.
- You are applying for a loan of ₹7.5 lakhs or less.
- You’re studying at a government-recognized institute with standard tuition fees.
- You have the necessary collateral for high-value loans.
- You’re looking for lower interest rates and can wait for processing.
When to Choose an NBFC for Your Education Loan
Go with an NBFC if:
- You need a considerable loan amount without collateral.
- Your admission is last-minute, and you need quick approval.
- You’re heading abroad for higher education, which comes with higher tuition and living expenses.
- Your preferred bank rejected the loan due to rigid eligibility criteria.
- You value ease of application, digital support, and faster disbursal.
Education Loan Tips for 2025 Applicants
As you evaluate your options, keep these practical tips in mind:
- Compare Offers: Use an education loan calculator tool or online loan comparison sites to analyze EMIs and interest differences.
- Check Eligibility Early: Don’t wait until after you’ve been admitted to apply. Start early to avoid delays.
- Review Moratorium Terms: Understand when your repayment will begin and how interest accrues during the moratorium period.
- Ask About Prepayment Penalties: Some lenders allow early repayment without extra charges, saving you interest over time.
- Plan for the Future: Factor in expected post-graduation salary, currency exchange (for international students), and repayment capacity before finalizing the loan.
What Loans in 2025 Look Like
The loans 2025 landscape is much more tech-driven and competitive than ever. Both banks and NBFCs are embracing digital transformation, offering AI-based credit assessments, digital KYC, and faster loan processing. Fintech collaborations have also enabled the development of hybrid lending models.
This shift gives students more power—but also demands more caution. Don’t just choose the fastest loan—choose the smartest one for your long-term financial health.
Final Thoughts
Whether you choose a bank or an NBFC, your decision should depend on your unique needs, such as course type, location, institute, loan amount, and repayment ability.
Banks may offer you affordability and security, while NBFCs give you speed and flexibility. Ultimately, the best education loan is one that enables you to pursue your dream education without compromising your financial future.
Before committing, take time to evaluate both options. Consult with advisors, read the fine print, and utilize available tools to simulate your repayment journey.
Author Bio:
Loan Quantum is your trusted online platform for accurate and easy-to-use loan calculators. We offer a range of tools, including loan EMI calculators, interest rate calculators, and loan eligibility calculators to help you make informed decisions about personal loans, home loans, car loans, education loans, business loans, and gold loans. Our user-friendly calculators ensure you find the best loan options tailored to your needs.
