Higher education often comes with significant financial requirements. Educational loans are designed to help students pursue studies in India or abroad without worrying about upfront costs.
Understanding interest rates and repayment terms is crucial to manage your finances responsibly and avoid future debt stress.
Interest Rates on Educational Loans
Interest rates for education loans in India vary depending on the bank, type of course, and collateral provided:
1. Secured Loans (With Collateral)
Typically for amounts above ₹7.5–10 lakhs.
Lower interest rates, usually 9%–13% per annum.
Collateral can be property, fixed deposits, or other assets.
2. Unsecured Loans (Without Collateral)
Usually for smaller loan amounts, often up to ₹7.5 lakhs.
Higher interest rates, around 12%–15% per annum, due to higher risk.
3. Loans for Studies Abroad
Rates may vary between 10%–14% per annum depending on the lender.
Some banks provide special schemes for abroad studies with lower rates for top institutions.
4. Interest Subsidy Schemes
Government schemes like Vidyalakshmi Portal and Central Government Interest Subsidy provide benefits to eligible students.
Interest may be subsidized during the moratorium period (study period + 6–12 months post-study).
Repayment Terms of Educational Loans
1. Moratorium Period
Typically course duration + 6–12 months after course completion.
During this time, interest may accrue but repayment of principal is not required.
2. Repayment Tenure
Standard repayment period: 5–15 years, depending on loan amount and bank policy.
Larger loans usually come with longer repayment options.
3. EMI Options
Equated Monthly Installments (EMIs) start after the moratorium.
Some banks allow flexible EMI options based on income and repayment capacity.
4. Prepayment and Foreclosure
Most banks allow partial prepayment or foreclosure without heavy penalties.
Paying off early can save significant interest over the loan tenure.
Tips to Manage Educational Loans Effectively
Compare Banks and Interest Rates: Look for the lowest effective rate including processing fees.
Check Moratorium Terms: Ensure the moratorium suits your graduation timeline and job prospects.
Plan Your EMIs: Estimate post-study income to choose comfortable repayment terms.
Maintain Good Credit History: Timely repayment helps maintain a healthy credit score.
Explore Government Subsidies: Take advantage of interest subsidy schemes if eligible.
FAQs: Educational Loans
Q1. Can I get an educational loan without collateral?
Yes, unsecured loans are available up to ₹7.5 lakhs depending on the bank.
Q2. Are interest rates fixed or floating?
Most education loans have floating interest rates, linked to MCLR or bank benchmarks.
Q3. What is the moratorium period?
The moratorium is the course duration plus a grace period (usually 6–12 months) after course completion, during which principal repayment is not required.
Q4. Can I prepay my educational loan?
Yes, most banks allow prepayment or foreclosure, which can reduce overall interest.
Q5. Do government schemes affect interest rates?
Yes, schemes like Central Government Interest Subsidy (CGIS) can subsidize interest during the study period, reducing the effective cost of the loan.
Published on : 1st October
Published by : SMITA
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