Tips to Reduce the Interest Rate on Education Loans

Many students choose education loans to fund their higher education. These loans make education more affordable and accessible for students pursuing higher studies in India as well as abroad. Several banks in India offer education loans with varied loan terms. However, the one loan term that most students and their families are concerned about is the interest rate of the education loan.

The interest rate on these loans can add financial stress to the students and their families. Most students struggle as they don't know how to reduce the interest rate on their student loans. Fortunately, the interest rate on these loans can be reduced by negotiating with the lender. In this article, we will explore the various tips on how you can reduce the interest on your education loan to help you reduce the overall loan cost.

Tips to Reduce the Interest Rate on Education Loans

The following are the tips you can use to reduce the interest on your education loan:

Compare Different Lenders

Many banks in India offer various education loan schemes to cater to the diverse needs and requirements of students. And the rate of interest on education loans varies from lender to lender. You should compare the interest rates and other terms of all the lenders offering education loans and choose the most suitable lender according to your needs. While comparing different lenders, you also should consider factors like:

• The collateral requirement of the lender.
• The eligibility criteria of the lender for an education loan.
• Co-applicant eligibility.
• Income and CIBIL score requirements.
• Accepted courses and countries.
• The repayment tenure for education loans. 

You should choose the lenders based on these factors to pick a lender that is offering the lowest interest rate and satisfies your requirements among them.

Meet all the Eligibility Criteria

The eligibility criteria for education loans vary by lender. Once you have chosen a lender to take an education loan from, make sure to meet all the eligibility criteria laid out by them. This helps you get a low interest rate on your education loan.

Banks can offer the lowest interest rate on student loans to those who meet all the criteria laid out by them. The basic eligibility criteria for student loans from most lenders include securing admission into a recognized university, a co-applicant with a good credit score and stable income, and a good academic history of the student.

Consider taking a Secured Loan

Collateral education loans often come with a low interest rate. Banks offer lower interest rates for secured education loans as there is a collateral involved in the loan. Including collateral in the student loan mitigates the risk for lenders, thus helping to lower the interest rate. Depending on your collateral availability, consider taking a secured education loan to get a relatively low interest rate on your education loan.

Choose a convenient Repayment Tenure

Consider choosing a shorter repayment tenure to lower the overall interest paid on a loan. Although having a shorter repayment tenure doesn’t directly lower the interest rate, it can help you reduce the overall interest you pay during the entire loan repayment period.

And opting for a longer repayment tenure can give you lower monthly payments, but you will end up paying a huge amount of interest on the entire loan tenure. Hence, choose an optimal tenure that ensures you get a good interest rate and affordable monthly EMIs.

Utilize Government Schemes

The government of India offers several subsidy schemes on student loans. These schemes provide interest subsidies on education loans for a certain time. The Central Sector Interest Subsidy Scheme (CSIS) and Dr. Ambedkar Interest Subsidy Scheme offer a subsidy for the interest on the education loans of students meeting certain eligibility criteria. Explore such government schemes to get interest subsidies on your education loan for a certain period.

Strengthen the Loan Application

You can also reduce the interest rate on your education loan by strengthening your profile. This involves boosting your loan application by adding a co-applicant with high income and good credit history, presenting any academic endeavours, and securing admission from a well-recognized university. Strengthening your loan application helps you negotiate with the lender to reduce the interest rate on the education loan.

Utilize Scholarships

Scholarships are one of the best ways to reduce the financial stress of students. Although scholarships do not directly reduce the interest rate, they can lower the interest you pay on the loan by covering a portion of the loan amount and reducing the principal amount.

This indirectly leads to lowering the interest part of the EMIs, ultimately reducing the overall cost of education loan repayment. Applying for a partial scholarship helps you reduce the overall interest payments on your education loan.

Make Prepayments on the Loan

Making prepayments on education loans is one of the most effective ways to reduce the interest you pay on them. It directly reduces the principal amount, leading to a reduction in the interest part of the repayments. Consider making prepayments on your education loan whenever possible to reduce the overall interest you pay on the education loan.

Transfer the Loan

One of the most effective ways to reduce the interest rate on an education loan is to transfer it to a different bank. Most banks offer a lower rate of interest for education loan takeovers than for a fresh education loan. Transferring the loan not only helps students reduce the interest rates but can also offer them more favorable terms. Consider transferring your education loan to a different lender with flexible terms to reduce the interest rate.

Conclusion

Education loans have become the primary option for many students to finance their higher studies in India and abroad. These loans help students afford their studies by covering all the expenses associated with their education. However,  education loans come with a cost of interest on the loan amount, which adds a financial burden on the students. Several lenders in India offer diverse education loans with varied loan terms to students.

The rate of interest on education loans differs from bank to bank. And many students struggle to reduce their interest rate on the education loan. However, the interest rate on student loans can be reduced by negotiating with the bank. In this article, we have provided several tips you can use to reduce the interest on your education loan to help you reduce the overall cost of the loan.