Education loans are a very popular product among Indians to further their career growth. Many students are overpaying for interest because they did not choose the right education loan product. Below we provide a framework to choose the best bank for education loan.
Here are key metrics to consider while choosing the best bank for education loan:
- Interest rate: The most important factor for choosing a loan is often interest rate. However, there are other factors to be considered that many overlook.
- Loan Moratorium Period: Some banks offer a moratorium period on education loans during which students need not make any loan payments. Some banks also offer lower interests during the moratorium period. We recommend students to choose education loans that have a moratorium period. Ideally, the period covers the term of education and 6 months after during which the student can find a job.
- Collateral: Many banks use collateral as a form of security in case of bad debt. Please know that the collateral can be liquidated in case of non-payment of the education loan.
- Early Payment Penalty: Most banks charge a penalty if students wish to close their loan early. If possible, choose a product without an early payment penalty.
- Processing Fee: A processing fee is charges for most education loans. Please note that some banks are willing to negotiate on processing fee terms.
While considering above factors, please look through the below bank options to identify the best bank for education loan:
- Vidyalakshmi: Vidyalakshmi.co.in is a tool launched by the Indian government to help students compare and apply for education loans from more than 40 banks. It is an easy way for students to compare multiple loan offers for interest rates/fees and charges/moratorium periods in one go. Please note that Vidyalakshmi only works with public banks. It cannot be used to compare loan offers from private banks, NBFC’s, and other lending startups.
- Public banks: Public banks like SBI offer the best interest rates for education loans under 30 lakh rupees. They take longer to process applications. They are your best bet if you know a local banker personally.
- Private Banks: Private banks offer diverse range on their interest rates. But, many process loan applications much faster than public banks.
- NBFC’s: Avanse and Credila offer more flexible terms compared to other Indian banks. They offer larger loan amounts and have some products that do not need collateral. However, their interest rates are higher.
- Lending startups: International lending startups like Prodigy and MPower offer some unique advantages for those going abroad. They do not need a collateral and are willing to lend beyond the 30 lakh INR limits that some banks have.