As the number of students wishing to pursue higher education increases at a breakneck speed, banks and financial institutions too have entered a rat-race to provide education loans at cut-throat interest rates. It is not possible to single out one bank which offers the best education loan interest rates, because they are flexible and depend on various factors. However, it remains a fact that the most important factor to consider when taking out an education loan is the interest rate the bank is going to charge. Another important factor to consider is whether the bank is going to charge a fixed education loan interest rate or a reducing rate of interest. Also take into consideration the fact that the government provides a full subsidy on interest rates to economically weaker sections of the society. And then, some banks provide women with a relatively lower education loans interest rate than they provide to men.
Education Loan Interest Rates
The education loan interest rates in India differ from bank to bank, based not only on the quantum of loan but also on the credentials of the individual applying for the education loan in India. Usually a combination of the base rate of interest and the total mark-up of the loan determine the final education loan interest rate in India. By and large, the base rate of interest varies between 8% to 12%, and the final rate of interest ranges between 8.3% to 12.25%. Another factor which may determine the final rate of interest is the repute of the institution in which the student has secured admission.
Secured Vs Unsecured Loans
This factor is very important for the bank when it is deciding on the education loan interest rate it is going to charge. A secured loan, that is an education loan in India which has provided a collateral security, would naturally draw a lesser interest rate; while an unsecured loan, being a risky proposition, would certainly draw a higher education loans interest rate. Banks give the students a moratorium period during which only the interest rate has to be paid on a simple basis, but once the moratorium period ends, mostly within 12 months after completion of studies, education loan interest rates are calculated on a compounded basis.
The Main Banks Which Offer Education Loan
The main reputed banks and financial institutions which offer education loans in India are: State Bank of India, ICICI Bank, IDBI Bank, HDFC Bank, Axis Bank, Canara Bank, SBBJ, Union Bank, United Bank, Central Bank, Bank of Maharashtra, Dena Bank, UCO Bank, Bank of Baroda, Syndicate Bank, Canara Bank, Indian Overseas Bank, Punjab National Bank, Avanse Financial Services, and Credilla.
Expenses Covered by Education Loans
Yet another factor you need to consider while taking out an education loan, apart from rate of interest, is what expenses will the loan cover, and whether it will be sufficient to meet your education expenses.
The following study-related expenses of the students are usually covered under an education loans:
- The whole amount of the tuition fees for the course duration
- Boarding and lodging expenses
- Exam and library fees which are to be paid by the student
- Commuting expenses, which are very important when you are studying abroad
- All other related expenses, also very important while studying abroad
How Can You Lower Your Education Loan Interest Rate?
Though it is difficult to convince banks to reduce your education loan interest rate, there are ways in which you can reduce it. You can choose between one of the ways listed below to reduce your education loan interest rate.
- You need to discuss with your college or university authorities to find out whether they have a tie-up with any particular bank or lending institution which might offer you an education loans at a lower interest rate than normal.
- If you are going to pursue your higher studies abroad, you just might be able to get a lower education loan interest rate, as the basic rates in foreign countries, mainly US and UK, are lower than in India. Moreover, there are some institutes which may themselves offer you an education loans on campus after you have registered for the course.
- Another way in which you might be able to get a lower interest rate is if some of your family members have a good rapport with the bank authorities and also strong financial credentials.
- As mentioned above, banks usually charge a higher interest rate in India for unsecured loans. So, if you have some property, FDs, gold or insurance policies lying idle, offer them as collateral security to reduce your interest rate.
- Also, it would be worthwhile to keep an eye out for new and exciting offers being introduced by banks from time to time. If you think a new scheme will reduce your burden considerably, after taking into account all incumbent expenses, you can refinance your loan.
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