Studying abroad is a dream for many students as it provides them with access to world-class education and lucrative job offers. The financial aspect of this decision, however, is often the biggest barrier they face. While a study loan can help aspirants fund their dream of higher education, the Education Loan interest rates can still impact your decision, as it directly impacts the EMI.
A higher interest rate not only makes repayment expensive but also increases the overall cost of borrowing. In this blog, we will explore how the Education Loan interest rate affects your repayment, and how you can utilise an Education Loan calculator to plan it effectively. Read on!
What is an Education Loan Calculator?
An Education Loan calculator is a digital tool that helps you calculate your monthly EMIs. All you have to do is enter these values:
- Amount of the loan
- Duration (in years)
- Education Loan interest rate
Based on these details, the calculator calculates your monthly instalments and the total interest paid.
Why Should You Use an Education Loan Calculator?
From monthly budget planning to choosing the right loan, here are all the reasons why you must use an Education Loan calculator:
- Calculate Monthly EMIs: The tool helps you calculate the EMI you will have to pay monthly and the total interest paid during the loan tenure instantly.
- Compare Loans: It allows you to compare different interest rates and repayment tenures to determine the most suitable loan for you.
- Plan Your Budget Successfully: You can plan and align your monthly EMI with your monthly income so that you can repay easily without any burden.
- Know Total Interest Payable: You can get a clear picture of what portion of your payment goes towards interest and what portion goes towards repayment of principal, which will help you gauge the total cost.
Common Mistakes to Avoid When Using Education Loan Calculator
Here are the most common mistakes that borrowers make when using the Education Loan calculator:
1. Ignoring the Total Cost of the Loan
Most borrowers focus only on the EMI amount and neglect the loan's total cost. If you increase your loan tenure to get lower EMIs, you'll have to pay more in interest. A calculator can help you find your ideal balance between tenure and EMI.
2. Not Considering Prepayment Options
Borrowers often do not consider prepayment options. Even if you pay a small extra amount every year for the loan, you will save on interest compared to the regular repayment schedule. Always use a calculator to calculate how your Education Loan interest rate affects your EMI.
3. Choosing a Shorter Tenure Blindly
The shortest loan tenure may lead to high EMIs that would be difficult for your monthly budget to handle. A calculator can help you find the middle ground that makes saving possible without sacrificing the comfort of your EMIs.
4. Overlooking Interest Rate Fluctuations
Loans with floating Education Loan interest rates are more sensitive to increases than fixed-rate ones. If your loan is based on a floating Education Loan interest rate, even a small increase in the interest rate will affect your monthly EMI and total repayment.
Why is Managing an Education Loan Important?
For many students and families in India, an Education Loan is a crucial financial aid to fund their dreams of higher education. Here are all the reasons why it is important to manage your Education Loan:
- Avoiding Financial Stress: Unscheduled repayments or default on EMIs can result in greater debt pressure and psychological pressure. Managing your Education Loan helps you reduce financial stress.
- Ensuring Timely Payments: Following up on repayment schedules will help to avoid late repayments and high penalties.
- Protecting Your Credit Score: Managing education loans helps you repay the loan on time, which reduces the chances of missing out on EMIs that can lower your credit score.
How Does Your Education Loan Interest Rate Affect Your Repayment?
The interest rate charged on your Education Loan impacts both the EMI and the overall interest you pay. A greater interest rate will imply that you will pay more in interest, and this will increase the burden of repayment.
On the other hand, a lower interest rate means you pay less interest, and your monthly EMIs will be more affordable. The slightest change in the interest rate can translate to huge savings in the long run.
Interest Rates Example
Assuming that you borrow an Education Loan of ₹10 lakh for 5 years. Your expected monthly EMI at an interest rate of 12% is ₹22,244, and the total interest paid will be ₹334,667 over the tenure. But in case the interest rate is 11%, your EMI will be approximately ₹21,742, and the cumulative interest will be approximately ₹304,545. This implies that a 1% rise in interest rate translates to an increase in EMI by ₹502 and total interest by ₹30,122.
To Conclude
Education Loan is one of the best options that parents and students alike can avail to finance their dream of pursuing higher education in India and abroad. The Education Loan interest rate, however, directly influences the EMI and total interest you pay. An Education Loan calculator helps you determine your monthly EMIs and plan repayment.
At Poonawalla Fincorp, we want to make higher education accessible for every student in India. This is why we offer collateral-free Education Loan of up to ₹1 crore at low interest rates starting at just 11.25%* p.a. and flexible repayment of up to 15 years. Apply for an Education Loan now to take a first step towards your dream!
Frequently Asked Questions
How is the Education Loan interest rate decided?
The lender determines the interest rate depending on the guidelines issued by the Reserve Bank of India, the creditworthiness of the applicant, the amount of the loan, and the loan tenure.
Can I use the Education Loan calculator to check how partial prepayments reduce my EMI?
Yes, there are some Education Loan calculators that allow you to input the prepayments to see how your EMI or overall interest reduces.
Is it possible to prepay an Education Loan without penalty?
Yes, most banks and lenders permit prepayment or loan closure at any time without any additional cost, and this helps to save on the total interest paid over the loan tenure.
How can an Education Loan calculator help me?
It gives the correct amount of EMI, which allows one to plan finances, compare loans, and avoid surprises in repayment.
Does increasing the tenure always make the loan easier to manage?
It lowers the EMI but increases the total interest paid. Use the calculator to balance comfort with savings.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply