Education loan: Private banks vs PSU banks. Where to bet to fund your higher studies
2 min read 02 Jun 2023, 01:00 PM ISTEducation loans have emerged as a viable solution to finance higher studies. Public sector banks offer lower interest rates, while private lenders provide convenience and quicker disbursal
PremiumThe rising cost of education has made it challenging for many individuals to finance their higher studies, both domestically and abroad. To overcome this financial hurdle, education loans have emerged as a viable solution. Choosing the right lender for an education loan is crucial, with public sector banks offering lower interest rates but private lenders providing convenience and quicker disbursal.
Most banks offer educational loans for long-term professional and technical courses at reputed universities. However, unconventional courses like music, fine arts, or culinary management may face difficulties in securing loans from public sector lenders. Private sector banks and non-banking finance companies (NBFCs) are more open to providing loans for such offbeat courses, said Amit Gupta, MD, SAG Infotech.
“PSU banks typically have a cap on the maximum loan amount they can offer, even though they will offer loans at lower interest rates. Private banks, with somewhat higher rates, generally are open to lending bigger amounts based on the course-college combination and their judgement of the employability of the candidate post-course completion," said Vinit Khandare, CEO and Founder, MyFundBazaar
Lower interest rates
Public sector banks generally offer education loans at lower interest rates compared to private banks. However, the interest rate depends on factors such as financial status, credit score, and the reputation of the institute. Banks may also charge a processing fee, which is usually lower in government banks.
Collateral requirements
Collateral requirements vary between public and private sector lenders. Public banks often require collateral for loans above a certain amount, while private banks offer loans without collateral up to higher amounts. Public sector banks may also ask for margin money, while private banks typically don't, said Amit Gupta.
Moratorium periods
Public sector banks often provide moratorium periods and grace periods for repayment, while private lenders may charge partial or full interest during the moratorium period. Prepayment charges are levied by private banks but not by public sector banks.
Processing times
Public sector banks have longer processing times compared to private banks, which are known for quicker approvals and flexible loan terms.
Education loan: Interest rate offered by public banks
The State Bank of India (SBI) interest rates on education loan start from 8.2 per cent. For Union Bank of India, the interest rate for an education loan starts from 8.85 per cent. Punjab National Bank’s education loan starts from an interest rate of 8.55 per cent.
Education loan: Interest rate offered by private banks
Education loan starts from 9.85 per cent at ICICI Bank, 9.55 per cent at HDFC Bank, 13.7 per cent at Axis Bank.
When choosing a lender, borrowers must consider their loan requirements, calculate the total expenses, and evaluate the advantages and disadvantages of both public and private sector banks. While public sector banks offer lower interest rates, private lenders provide personalized loans with quicker processing and digital access to loan information.
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