Students often struggle to differentiate between education loan prepayments and part payments. Making prepayments and part payments is an effective way to reduce your overall student loan repayment cost. They both can reduce the principal loan amount and the tenure of education loans. However, private lenders can charge education loan prepayment charges for making part and prepayment on student loans.

In this article, we will explore the differences between education loan prepayments and part payments, along with their benefits and disadvantages. Knowing the differences between prepayments and part payments can help during your repayment period.

Part-payment in Education Loans

Part payment in education loans refers to when the students repay a part of their outstanding principal loan amount. Making part payments on education loans is an effective strategy to reduce the total outstanding loan amount.

  • Part payments can help you reduce the overall interest part of your education loan repayments.
  • This ultimately helps you reduce the overall repayment cost of your education loan.
  • Students can make multiple part payments on their education loans.

Here’s an example to understand part payments in education loans: 

Example: 

Suppose a student took an education loan of ₹10,00,000 at a 10% interest rate and a repayment tenure of 7 years. Now the monthly EMIs of their student loan will be approximately 16,600. After 2 years, the outstanding loan amount will be around ₹8,30,000. Now, the student had saved up ₹1,50,000 and would like to use this amount to make a part payment on the student loan. 

Making a part payment of ₹1,50,000 can lower the monthly EMIs by around ₹1500 or reduce the tenure by one year by lowering the outstanding loan amount. This significantly reduces the financial burden of the student.

Prepayment of Education Loans

The prepayment of education loans involves making a lump sum payment to either reduce or clear the total outstanding loan amount before the loan tenure ends.

  • Prepaying your education loan can significantly reduce the interest payments of the loan by reducing or clearing the outstanding loan amount.
  • Prepayment of education loans can help students close their student loans before the tenure ends. This significantly reduces the financial burden of students.
  • Students often make a one-time lump sum payment to prepay their education loans.

The following example explains how prepayment education loans work:

Example: 

Let’s assume that a student took an education loan of ₹10,00,00 at an interest rate of 10.% per annum, and the loan tenure is 7 years.
After making regular payments on the loan for 2 years, the outstanding principal amount is reduced to around ₹7,50,000. 
Suppose the student has now received a bonus of ₹8,00,000. This can help the student make a prepayment to close the loan before the tenure ends and save an interest amount of around ₹2.5 lakhs.

Differences between Part Payment and Prepayment of Education Loans

The following table explains the differences between part payments and prepayments of education loans:

 Parameter  Education Loan Part Payment  Education Loan Prepayment
Meaning  Part payment involves repaying a part of the principal amount that is higher than the regular monthly payments. It involves repaying either a major portion or the entire outstanding principal amount of the loan before the tenure ends.
Principal Amount Reduce the outstanding principal amount. It significantly reduces or completely clears the total outstanding loan amount.
Interest Payment Reduces the overall interest amount by reducing the principal amount.  It can eliminate all future interest payments depending on the prepayment amount.
Student Loan EMIs Reduces the EMI amount There will be no more EMIs after the loan is closed through the prepayment of education loans.
Repayment Tenure Making a part payment can reduce the repayment period of the student loan. Closing the loan through a prepayment ends the repayment tenure.
Penalties  Lenders can charge a nominal fee for part payments. Private lenders often charge a penalty for closing your loan before the tenure ends.

Benefits of Education Loan Prepayments and Part Payments

Both prepayments and part payments help students reduce the overall repayment cost of education loans. The following are the benefits of education loan prepayment and part payment:

Lowers Overall Interest Payment

As we have discussed earlier, both prepayments and part payments help students reduce the outstanding principal loan amount. This reduced principal amount lowers the overall interest amount on the loan during the repayment period. And when students close their education loans with a prepayment, all future interest payments will be eliminated. 

Makes EMIs Affordable

Making prepayments and part payments on education loans lowers the EMIs of the loan. The lowered principal and interest amounts ultimately reduce the amount of EMIs charged to the students. Closing the student loan through prepayment eliminates the EMIs of the loan.

Shortens Repayment Tenure

Apart from reducing the repayment cost of the loan, you can also shorten or end your repayment tenure by making prepayments or part payments on your education loan.

Improves CIBIL Score

Making regular payments on the student loan before closing it with a prepayment can improve the CIBIL score of the borrowers. Consistent payments indicate a positive repayment history in the credit history. This is how part payments on your education loan improve your CIBIL score. 

Disadvantages of Prepayments and Part Payments in Education Loans

Although a part payment or prepayment of education loans has several benefits, they also have certain disadvantages, such as education loan prepayment charges and a lock-in period. Students should be aware of these disadvantages before making prepayments or part payments on their education loan. 

Lock-in Period

There will be no lock-in period on education loans from public banks. However, private banks and NBFCs have a lock-in period of 6 months during which you cannot make part payments and prepayments on your education loan.

Education Loan Prepayment Charges

Private lenders charge education loan prepayment charges to students for making prepayments and part payments, and closing their education loan before the tenure ends. However, there are no education loan prepayment charges on student loans in public banks. 

Many students struggle to manage their finances when faced with issues during the repayment period. WeMakeScholars is here to help you solve them. We have a dedicated post-sanction team to help you resolve your repayment issues. Contact our team by requesting a callback and get a stress-free education loan journey till the end of your tenure. Since WeMakeScholars is supported by the Ministry of IT, we offer our services completely free to students.

Conclusion

Both education loan prepayments and part payments reduce the financial burden of students. They are effective ways to clear the student loan before the tenure ends. They help students reduce the overall repayment cost on their student loans and shorten their tenure.

This article covers the key differences between education loan prepayments and part payments. We have also covered the benefits and disadvantages of part payment and prepayment of education loans, such as the education loan prepayment charges and lock-in period, to help you make a well-informed decision.