Education Loan Interest Rate – Overview
Education loan interest rate is the amount of money charged on the principal loan amount by a lender. If you borrow money from a bank, a non-bank financial institution, or another financial institution, you will have to pay some monthly fee in addition to the loan. In simple terms, it is the cost of borrowing money from a bank or other financial institution.
The education loan interest rate is calculated by a number of factors, like the loan amount you are taking, the type of education loan you opt for, the loan tenure chosen, the student or co-borrowers cash inflow, loan repayment history, and so on.
An education loan is the most cost-effective approach to pursue higher education without jeopardising your financial situation. You can borrow money for courses in India but unemployed students must have a parent or guardian as a guarantor.
There are several financial institutions that offer you the right education loan to meet the cost of education, fees payable to college/school/hostel, exam fees, purchase of books/equipment, travel expenses, purchase of computers essential for completion of the course, etc. The education loan interest rates will be floating for the entire period of the loan.
Factors that determine Education Loan EMI
There are many factors that determine how much your Equated Monthly Installment (EMI) will be on your education loan. These factors would be:
- Education loan interest rate
- Loan amount
- Repayment tenure
5 tips to get the lowest education loan interest rate
Borrowing the loan can be challenging especially if the education loan interest rate is high. Therefore, before seeking a financial institution for the loan, your primary goal should be to look for options that allow for reduced EMI payments on your education loan, resulting in a lower interest rate.
Banks and NBFCs offer education loans with interest rates ranging from 9% to 14%. However, the education loan interest rate is negotiable. Here are some tips for negotiating a lower interest rate on your education loan in India:
1. Academic Record
You can get an education loan from a bank or an NBFC based on your academic records. If you are applying for higher education in India, it is important that you take a keen consideration in your academic record, the college you want to go to or the college you choose to study in as they will highly influence the rate of interest. Maintain a strong profile so that banks will willingly provide low interest rates on loans because they are confident in your ability to repay the money.
If your score is good and you are accepted to a college, you will be able to borrow money from a bank. Your loan request will be approved quickly based on your 10th or 12th grades and other academic achievements. You will also benefit from a lower student loan interest rate.
2. Reputation of the College or University
When you secure admission to one of the top colleges or educational institutes in India, the lender may reduce the interest rate on your education loan.
Before making a final decision, it is important to calculate your expenses as the loan amount you take can make a huge difference in the processing fees. You can also choose Unsecured loan options if you want to go for a smaller loan.
3. Course type
You can get a low education loan interest rate if the course you choose has a lot of job opportunities. Students who pursue engineering, doctorate, or other courses benefit because they can meet the lender’s repayment capacity requirements. If you apply for the loan to pursue courses with fewer job opportunities, the education loan interest rate may be high.
4. Loan with or without collateral
Your education loan interest rate is determined by the value of your collateral. This rate will be low if you provide a house as collateral for your loan. To borrow a loan more than 7.5 lakh, you must provide collateral security against the loan amount. And the collateral can be your land, house, insurance policy, fixed deposit, or something else.
Also, check the interest rates of various banks and NBFCs and use the information to negotiate with their competitors. Banks will be willing to cut their interest rates if you present a strong profile.
5. Income and credit history of co-borrowers
An education loan is obtained jointly with parents as a co-borrower. In this case, parents must provide proof of income as well as other documents. If a co-borrower has a high income and a good credit history, it will help you get a low interest rate on the borrowed amount.
The Reserve Bank of India (RBI) has recently dropped the repo rate, so you should take advantage of this opportunity to cut your interest rate and meet your educational goals.
Are education loans worth it?
Here’s why you should always consider taking an education loan:
- Be financially independent
- Reap income tax benefits under 80E of IT Act
- Leverage flexibility during repayment
- Strengthen your credit history
Whether you are an independent student or still rely on a guardian for financial support, you must prove your or the guardian’s financial viability to repay the loan on time so that banks or non-bank financial institutions like Varthana can trust you to provide their services. It is not mandatory for a person to be employed in professional service to provide the necessary financial evidence. Applicants from the business and self-employed sectors are also eligible to apply for Varthana education loans. Apply now