An education loan is a funding plan that is specially designed to support the financial requirements of students who want to pursue higher education. There are various universities and colleges across the world that offer great learning opportunities followed by better career prospects. Students may opt for loans for studying abroad or even within the country. This brings into picture the two different types of loans, study abroad loans and domestic loans. Most of these education loans are very easily available and help students in paying off not only their course fees but also the hostel costs and travel costs. Being a loaned amount, education loans naturally come with an attached interest rate that the student needs to pay off, along with the principal amount.
Here are some tips on getting the lowest interest rates on student loans:
1) Look for discounts on loans
Most lending institutes offer discounts and offer to borrowers, especially those opting for Study Loans. One of the most popular bank discount schemes is loyalty discounts wherein the borrower gets an advantage if they have an existing account at the bank. Another discount option that students can enjoy is when they choose to start paying the interest amounts during the course of their college, without delaying the interest payment cycle.
2) Choosing the right loan tenure
When students choose to go for a longer loan term, they would be paying lesser EMI (Equated Monthly Instalments) but the interest rates will spike up. Let’s take an example, if a loan of Rs. 10 lakhs is taken for five years at an interest rate of 9% per annum, it would have an EMI of Rs. 20,758/- if divided over those five years. So if we multiply 20,758/- by 60 months (5 years), the student would be paying a total of Rs. 12,45,501/- in total. However, if this loan is taken for ten years, the EMI would drop to Rs. 12,668 but the total amount that the student pays towards the end would be Rs. 15,20,109/-
If students go in for a shorter loan term, they would be paying a higher monthly installment but will end up paying lesser, compared to a long-term loan. The best way to choose a loan term is by evaluating your ability to pay off the loan.
3) Using Education Loan Calculators
The best way to calculate and plan your student loan is by making use of an Educational Loan EMI calculator through which you can understand the different aspects of an education loan. For. EMI and interest calculations only sound easy, but there is a lot of other math that goes into it. For example, an education loan EMI calculator requires you to fill in details like the loan tenure, rate of interest levied on the education loan and even the principal amount that you are looking at borrowing. Once you submit these details, the calculator shows you different combinations of EMIs and interest amounts that you can pay. You can easily choose an option that is more feasible for you. The best part about the calculator is that it brings forth many different loan repayment combinations so that there are plenty of options available to students. With these calculators, you don’t have to worry about making inaccurate calculations because the tool does it for you very efficiently.
4) Choosing between fixed and variable rates
As the name already suggests, variable interest rates usually keep fluctuating over time, whereas fixed rates are static through the whole loan period. Usually, variable interest rates are lower (initially), compared to fixed interest rates, but may increase from time to time. If you are going in for a short-term loan, it would make sense to select a variable rate loan.
Usually, student loans are granted to students and to their parents/ legal guardians, who are the co-applicants in the process. Students can either select secured (loans with collateral) or unsecured loans (loans without collateral), but the interest rates are usually higher for the latter. Usually, the payback time for an education loan is that of five to seven years, but some banks or NBFCs may also permit repayment extensions. The best way to go about getting lower interest rates is by doing thorough research on the different interest rates that banks are offering and using EMI calculators to understand the best interest payout scheme.
Related Article:- A Complete Guide to Student Loans for the UK