How Student Loan Interest Rates Are Calculated

How Student Loan Interest Rates Are Calculated

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How student loan interest rates are calculated

The rate of interest is calculated using an array of factors like how much loan amount you have requested, the type of student loan you want, the chosen tenure, your or your co-borrower’s future cash inflow, loan repayment history of your co-borrower, and so on.

In this article, we will show you how interest accrues and how it’s applied toward each payment. This task can be completed much faster, more accurately and with little input.

If you are looking for a higher education course, you might be surprised at how important it is these days to take out a student loan. Today, education is extremely important. Education enables us to achieve new heights in our careers, to live a respectable life, to raise our standard of living, to achieve financial goals, and much more!

Student loan is a long-term personal investment that has the potential to generate returns like none other. You can make your dreams come true with an education loan.

The loan is accessible for graduate and postgraduate degrees in India’s leading institutes in fields such as medical, engineering, and management. Tuition, examination fees, library subscriptions, book costs, lab tools/equipment, laptop/computer, hostel charges (if any), and other expenses are covered by the loan.

Students can apply for student loan directly. Their parent(s) or guardian, on the other hand, will be treated as co-borrowers, and their role will be similar to that of a primary debtor (a person who owes money).

The student loan interest rates calculator is an online tool (provided by various lenders) that can help you, as a prospective student loan applicant, in calculating the Equated Monthly Installments (EMI) accrued on your education loan. The conventional way to accomplish this task would be to use the EMI formula for calculating. But before you apply for education loan, assess how much the Equated Monthly Instalment (EMI) will be.

How to Calculate EMI easily:

It’s actually quite simple to figure out how lenders charge interest for a given billing cycle. Take the following three steps:

Say you owe 10 lakh INR on a loan with 10.5% annual interest for a period of 10 years (i.e., 120 months). Then your EMI = ₹10,00,000 * 0.00875 * (1 + 0.00875)120 / ((1 + 0.00875)120 – 1) = ₹13,493, which means you will have to pay ₹13,493 for 120 months to repay the entire loan amount. 

The total amount payable will be ₹13,493 * 120 = ₹16,19,220 that includes ₹6,19,220 as interest toward the loan.

Interest starts accumulating like this from the moment your loan is disbursed and your co-borrower will be charged interest until the tenure period.

Importance of Student Loans in India

The cost of education in India has been increasing with each passing year. Because of these rising costs, it is becoming more and more difficult to fund a child’s education on one’s own. As a result, there has been an increase in demand for student loans in India to help cover the costs of higher education.

Responding to the demand for education loans in India, a number of Banks or NBFCs have established themselves as contenders for the position of the leading student loan provider. A student loan in India is based on a broad range of graduate and postgraduate courses, as well as doctoral and professional degrees and courses.

The amount of expenses covered by an educational loan in India includes both direct and indirect costs.

Features and Benefits of Student Loans

  • A student loan can be taken out by an applicant for studying in India
  • Student’s parent or guardian must be a co-applicant on the loan application
  • If the student loan applied for is up to a certain amount (generally 7 lakhs), there is no need for the applicant to put up any security or collateral. However, in excess of the stated amount, security (fixed deposit or property) must be put up as collateral
  • The maximum limit for an educational loan varies by bank and the financial institution; however, for studies within India, the loan amount is usually capped at Rs. 10 lakh
  • The typical loan tenure is 1 to 7 years.

The primary goal of higher education is to prepare you for positions of leadership in the workplace and public life. Young people must complete higher education and/or technical courses to qualify for the 21st-century employment that drives the Indian economy.

The most cost-effective approach to pursue higher education without jeopardising one’s financial situation is to take out a student loan. To learn more, read everything you need to know about Education Loan in India.

Varthana has an exclusive list of recognised courses and institutions to which we loan money for education. Apply now for a student loan based on your qualifications if the course you want to take and the organisation you want to attend are both in Varthana’s database.


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