Demystifying Education Loan Interest Rates - What You Need to Know

Demystifying Education Loan Interest Rates - What You Need to Know: Scholarships and education loans have become very common nowadays for pursuing education. Education loans, which are a type of loan, provide financial assistance to students for their higher education. 

By taking this loan, students get money for expenses like fees, books, hostel fees, etc. However, before taking an education loan, it is very important for you to understand what the interest rates are on it, as it directly affects your loan repayment.

In this article, we will try to understand the interest rates of education loan and tell you everything you need to know about it in easy Hindi.

Demystifying Education Loan Interest Rates - What You Need to Know:

1. What is education loan interest rate?

The interest rate on education loan is the rate at which the lender (bank or financial institution) charges interest on the money given to the student as a loan. For example, if you have taken an education loan of Rs 5 lakh and the interest rate on it is 10%, you will pay 10% interest every year, which will be equivalent to Rs 50,000.

2. How is the education loan interest rate determined?

The interest rate of an education loan can be affected by several factors, mainly including the following:

Banks and financial institutions: Different banks and financial institutions set different interest rates as per their policies. Some banks may have lower interest rates than other banks.

Loan amount: If you have taken a large loan amount, the interest rate may also be slightly higher. However, in many banks this rate depends on your eligibility and the duration of your course.

Property or guarantee: In some banks, if you provide property (such as house or land) or any other type of guarantee for the education loan, the interest rate may be lower.

Floating or fixed interest rate: The interest rate can be floating (flexible) or fixed (fixed). Under the floating interest rate, the interest keeps changing over time, while in the fixed interest rate it remains fixed.

3. Difference between fixed and floating interest rates:

Fixed interest rate: As the name suggests, a fixed interest rate is always the same. This means that you will pay the same interest rate throughout the tenure of the loan. It offers stability as you are assured of knowing exactly how much you will have to pay. However, it can be higher than a floating interest rate in some cases.

Floating interest rate: A floating interest rate is a rate that changes over time. It is usually affected by market conditions, central bank policies, etc. With a floating rate, the interest rate may be low at the beginning of the loan, but it may also increase later.

4. What is the interest rate on education loan?

The interest rate on education loan in India is usually between 7% to 12%, which may vary depending on the bank and the terms of the loan. In some banks this rate is floating and in some it is fixed. It is also worth keeping in mind that the interest rates of government banks are usually lower than private banks.

5. Subsidy and discounts on education loan:

The Government of India has also provided some special discounts and subsidies on education loans, so that students can easily repay the loan. Some of the major schemes are as follows:

Pradhan Mantri Vidyarthi Yojana: Under this scheme, students get subsidy on interest on education loan. If you are studying from a government-recognized college, then this scheme can be beneficial for you.

Interest Subsidy Scheme for Education Loans: Under this scheme, the government provides discount on interest to poor and middle class students. This facility is available when students are facing some specific difficulty during the course.

6. How to pay interest on education loan:

Interest on education loan can be paid in two ways:

Pay interest before graduation: Some banks give you the option of paying interest before graduation while taking an education loan. In this, you have to pay interest on the principal amount of the loan in advance.

Pay interest after graduation: In most cases, students are given a grace period of some time (eg 6 months to 1 year) after graduation, after which they start paying the principal amount and interest of the loan. During this time, the student can also get a discount on interest.

7. Process of repayment of education loan:

It is very important to understand the repayment process of education loan, as it can affect your financial situation. Under the time limit set by the bank, you have to pay the principal amount and interest of the loan. Generally, banks give you the option to repay the loan over a period of 10 to 15 years.

EMI: Most banks follow the EMI (Equated Monthly Installment) system for education loans, wherein an equal amount is paid every month.

Freelance plan: In some banks, you can choose a repayment plan as per your convenience, such as a lump sum payment or periodic installments.

8. Some important points related to education loan:

Delay in loan repayment: If you delay the payment of education loan, the bank may charge you additional charges and your credit rating may also be adversely affected.

Increase in interest due to late payment: In some cases, if you do not pay for more than the stipulated time limit, the interest rate may increase.

Flexibility in repayment: If you are facing problems with your repayment for any reason, try contacting the bank and trying to change the repayment dates.

Conclusion:

It is very important for you to understand and have the right information about the interest rates on education loan, as it affects your ability to repay the loan. By understanding this and with the right planning, you can manage your education loan properly. Therefore, it is important that while taking an education loan, you get complete information about the interest rate, repayment plan and available subsidy so that you do not face any problem later.