Education Loans in India: Parents’ Guide to Smarter Borrowing

An Education Loan is a financial product used to fund higher education in India or overseas. Knowledge of the Education Loan rate and a good CIBIL Score are significant in obtaining approval and favourable student loan rates. Let’s understand how an Education Loan is one of the smartest borrowing options in India.

What is an Education Loan?

An Education Loan is a loan to finance advanced studies at recognised institutions. Banks and NBFCs offer Education loans with competitive student loan interest rates as compared to other credit products. Education loan rates are typically lower because education is a priority lending area.

An Education Loan also offers longer repayment periods than traditional loans. Education loans are often supported under priority sector lending guidelines, which helps keep interest rates relatively affordable. Before taking out a loan, parents should understand how the Education Loan rate affects the overall repayment.

Some of the principal expenses embraced in an Education Loan are:

• Examination fees and tuition
• Hostel and accommodation fees
• Books, equipment and study materials
• Cost of travelling abroad to school

Factors That Determine Student Loan Interest Rates

The Education Loan rate also significantly affects the total repayment amount over the tenure. Student loan interest rates significantly affect monthly EMIs, even with slight changes. These factors can be understood to achieve the most favourable Education Loan rate.

The precise Education Loan rate depends on various factors lenders consider when you apply.

Most leading lenders offer floating student loan interest rates with the repo rate. Your Education Loan rate changes when the RBI changes the rates.

Fixed vs Floating Education Loan Rate

The interest rates most lenders charge on student loans are typically floating, pegged to external benchmarks such as the repo rate. Your Education Loan rate varies when the RBI changes policy rates. EMIs decrease during favourable cycles and rise during tightening of monetary policy.

Fixed Education Loan rates are fixed for the entire tenure and are rarely offered. Before finalising the Education Loan, borrowers should compare interest rates from different lenders.

CIBIL Score: Key to Education Loan Approval

CIBIL Score is a determining factor in the approval of an Education Loan. Students without a credit history get their CIBIL Score evaluated by the lenders. Having a strong CIBIL Score improves approval chances and helps secure competitive student loan interest rates.

A CIBIL score above 750 is excellent for an education loan application. Applicants with high CIBIL Scores are offered the best interest rates on student loans by lenders. One should consider the CIBIL Score of their parents or co-applicant prior to obtaining an Education Loan.

How to Improve CIBIL Score Before Applying

• How to Enhance CIBIL Score before Applications
• Pay all overdue dues in order to enhance your CIBIL Score
• You should avoid making more than one loan application, which will reduce your CIBIL Score
• Keep the usage of credit at 30% or less to increase the CIBIL Score
• Check the CIBIL Score report before applying for an Education Loan

Education Loan Repayment Structure

Repayment of the Education Loan begins upon course completion and is subject to a six- to twelve-month moratorium. The EMI is based on the income rate, the Education Loan rate, and the Education Loan term. Lower student loan interest rates mean students can make affordable monthly payments. Early repayment options will help reduce overall interest expense.

Smart Borrowing: Getting the Best Education Loan Rate

Securing favourable student loan interest rates is a strategic process. Education Loan rates of various lenders should be compared by the parents. The CIBIL Score plays a crucial role in determining the interest rate on an Education Loan; therefore, it is advisable to improve your score before applying.

Expenses to Exclude from Education Loan Amount

• Costs to be excluded from the amount of Education Loans
• Nice accommodation on top of the necessities
• Expensive devices that are not necessary in studies
• Entertainment and leisure travel costs
• Costs of transportation (privatised)
• Unreasonable living allowances

A lower principal will reduce interest payments at any interest rate on the Education Loan. Only necessary costs should be calculated to reduce the interest rate burden on student loans over the tenure.

Common Mistakes to Avoid with Education Loan

Being aware of common mistakes can help you manage your Education Loan more effectively and avoid unnecessary financial strain.

• Forgetting the effects of the Education Loan rate on total repayment
• The reason behind not having a CIBIL Score before applying for an Education Loan
• Not comparing the interest rates charged on student loans by lenders
• Neglect of the rate reset provisions on the Education Loan rate
• Beyond assuming a stable income assumption of immediate repayment ability

Also Read: Top 5 Mistakes to Avoid While Picking an Education Loan Provider

To Conclude

An Education Loan is a crucial financial decision that requires careful evaluation. Understanding the Education Loan rate and maintaining a strong CIBIL Score can significantly improve your chances of securing competitive student loan interest rates. By choosing a loan that aligns with your long-term repayment capacity, you can fund higher education responsibly while protecting your financial future.

Explore Poonawalla Fincorp's Education Loan for competitive rates and hassle-free processing. Connect with us today for more details!

FAQs

What is the current Education Loan rate at Poonawalla Fincorp?

Education Loan interest rates at Poonawalla Fincorp start from around 11.25% p.a., subject to the applicant’s CIBIL Score, course, collateral, and lender policies.

What CIBIL Score is required for Education Loan approval?

A CIBIL Score of 650 or above is generally acceptable for Education Loan approval, while a score of 750 and above helps secure more favourable student loan interest rates.

How do student loan interest rates differ from personal loans?

Education loans generally carry lower interest rates than personal loans because education is supported under priority sector lending guidelines and has longer repayment terms.

Can I negotiate the Education Loan rate with lenders?

Yes, borrowers with a strong CIBIL score, stable income profile, and collateral may be able to negotiate better Education Loan rates with lenders.

How does CIBIL Score affect Education Loan interest rates?

A higher CIBIL Score improves eligibility for lower interest rates and more favourable Education Loan terms, subject to lender assessment.