How to Get a Lower Interest Rate on an Education Loan

interest rate on education loan for abroad

Written by Shreya Berry

Shreya has expertise in writing engaging content for the readers and has a deep interest in unique applications of technology in various domains. She has worked closely on projects with Neil Patel Digital, Hindustan Times, News 18 and Shiksha.

December 3, 2020

Higher education in a well-known institute lets your kids develop a stronger future prospect. You will be shocked how much the name of a good university on a curriculum vitae will shine. Education loans will help you finance all financial needs, whether your child wishes to learn in the country or abroad, without straining your liquidity to satisfy other commitments.

If you have to pay the loans, it is necessary to book the most nominal interest rate on education loan. This will ensure that reimbursement is effective with ease. How can such rates be achieved? What is the rate of interest on education loan? Let’s see how an education loan with the lowest interest rates can be purchased in India.

Ensure that you meet the criteria for eligibility

The lenders have different qualifying requirements. To make sure you qualify for an educational loan, review your favourite lender’s eligibility conditions. You will thus prevent borrowing from a lender at high rates because of eligibility issues. Eligibility also benefits you as you have one of the lower student loan rates to bargain interest rate on education loan with the bag and creditors.

Consider a loan on the property rather than a regular loan for education

You can also take a loan on the property to pay for higher education rather than an education loan to get the financing you need. Since it’s a protected loan, the cheapest student loans are anticipated. In this way, even if you need a high debt sum to cover all necessities, from travel fares to tuitions and lifestyle needs, you will benefit from a lower interest rate on education loan for abroad. In comparison, a home loan provides greater financing on the grounds of the value of the property, as opposed to an academic loan. In fact, an educational loan funds 70%-95% of the amounts you need; however, you can get the whole amount you need with a mortgage loan. The refund of a student loan will extend up to 20 years, and an education loan only lasts for 15 years.

Check for a cheap loan

Various suppliers of education loans provide various interest rate on education loan in India. Although you could be tentative to borrow from your bank for years, suggest NBFCs too on the basis of your connection to the institute. For example, UniCreds offers nominal loans, which make reimbursement easier. In comparison, no undisclosed costs are attached to the expenses.

Select Correct options for EMI

How to reduce interest rate on education loan? You will both reduce the EMIs and display the creditor’s compensation opportunity for a longer period. If you borrow a heavy sum on a short term, particularly without high income and/or an exceptionally strong credit record, a lender is less likely to trust in your repayment capability. When you prefer a more lengthy and fair tenure, do not choose a tenure too long because it just raises the cost of interest. You should also start using Flexi loan services to repay if required and only pay interest on the amount used. So you are prepared without paying additional interest for unforeseen costs.

Have a decent loan ranking

A strong credit score strongly relates to your lendability and your prospects for repayment. A ranking of 750 or above allows you to earn from a lower average interest rate on education loans because the borrower doesn’t consider the loans as risky. If you have time, clear up unpaid loans and develop your loan before applying for an education loan.

Now that you know how to reduce the cheapest education loan in India bring these tips into effect to save your costs. Which bank has lowest interest rate on education loan? When you are searching for India’s best education loan, consider using UniCreds against higher education land, which provides you an instant loan at reasonable interest rate on education loan.

Important plan on repayment

In general, unsecured student loans for up to eight years are available. On the other hand, subsidized student loans for up to 10 years or more are eligible.

Secured education loans are available for a longer-term. While long term education decreases the monthly EMI, the total borrowing costs are increased. Hence, it is often recommended that you go for a shorter term.

Please note:

You are entitled to tax exemption under Section 80(E) of the Income Tax Act of 1961 if you apply for a school loan. The interest payment on the education loan can be claimed. You should note, however, that only a person who has taken the loan will be able to seek tax benefit, even though he/she is not the true recipient.

What can existing education loan borrowers do?

The first thing you can do is call your lender to ask them if the debt can be restructured if you are someone who is currently paying an education loan and is already finding it tough to repay it.

In August 2020, a one-time restructuring of loans without classifying them as NPAs was approved by the Reserve Bank of India (RBI) to help businesses and individuals handle the financial burden caused by the Covid 19 pandemic. In compliance with the guidelines released by RBI in August, the personal loan resolution plan (which includes education loans as classified by the apex bank) can include the transfer of any interest accrued/to be accrued to the credit facility, the rescheduling of payments and the granting of a moratorium for a period of 2 years on the basis of the income stream assessment of the borrower. The RBI allowed lenders to alter the overall tenor of the restructured loan accordingly.

As these are part of the RBI’s wider restructuring framework, current credit borrowers may have to wait for their creditors to announce comprehensive loan restructuring guidance. The State Bank of India (SBI), for example, has launched an online platform for the seamless and hassle-free execution of retail loan restructuring, such as home loans, car loans, etc. Using the platform, borrowers have the option of filing for a moratorium of 1-24 months and extending the length of the loan.

What can new education loan borrowers do?

1. Go for a collateral loan

Most banks encourage students without equity to take out educational loans. You must know, however, that it can be a cheaper option to opt for a secured loan with collateral. Unless the amount of your educational loan is very high, many banks or financial institutions do not request collateral. As the creditor is not exposed to a high risk of default by the borrower, an education loan with collateral offers a lower interest rate on education loan compared to unsecured loans. So, if you own any assets, such as land, property or FD, you can use it to apply for an education loan as collateral.

2. Pay interest during moratorium

Equated monthly payments (EMIs) for education loans do not commence directly after disbursement of the loan. After the completion of the course or when he/she begins earning, the borrower may commence the loan repayment. A moratorium is named this time period. Since, during the moratorium period, the creditor is not forced to pay the EMIs, the lender owes interest (simple interest) which is applied to the principal sum.

Some banks, if the borrower chooses to pay the interest amount during the moratorium period, may offer concessions (usually 1 percent) on the total interest rate on education loan. It is also advisable, during the moratorium period, to pay the interest component of the loan to reduce the cost of repayment.

3. Loan subsidy schemes

To make educational loans more available, the federal government and various state governments now provide subsidy schemes. For example, the Ministry of Education provides students belonging to the Economically Weaker Section (EWS) group with subsidies. The eligibility requirements require the total annual income of the student’s family to not exceed Rs 4.5 lakh. The interest on the loan incurred during the course, plus a one-year moratorium, will be paid by the Government of India.

4. Shape a sensible plan for repayment

For a term of up to eight years, unsecured education loans are usually eligible. On the other hand, for a period of up to 10 years or longer, guaranteed education loans are available. For longer terms of tenure, guaranteed education loans are available – up to 10 years for loans up to Rs 7.5 lakh, and 15 years for loans over Rs 7.5 lakh. While the monthly EMI sum is lowered by longer term, it raises the total cost of repayment. Therefore, opting for a shorter tenure is often recommended. Often, there is no charge on the prepaid education loan, meaning you can repay the remaining balance of the loan and save on the interest rate on education loan.

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