Can we get an Education Loan at zero interest rate

With the cost of education rising all over the world, education loans have become the primary option of funding for many students. These loans help students fund their education both in India and abroad.  

However, when pondering about education loans, the one question that can arise in every student’s mind is, ‘Can I get an education loan with zero interest? So, this article explores whether an education loan without interest is possible and which banks give such loans. It also explains various methods of how you can save money on education loans.

What is a Zero-Interest Education Loan?

Before knowing whether you can obtain an interest-free student loan, let us first understand what these loans are. A zero-interest education loan is where the borrowers are not charged any interest on the loan amount. This essentially means that you don’t have to pay interest and only have to repay the principal amount. 

Which banks give zero-interest Education Loans in India?

There are many banks and NBFCs in India that offer diverse education loan schemes for students to pursue education in India as well as abroad.

However, no bank in India offers an education loan at 0% interest. But this doesn’t necessarily mean you can’t get an education loan without interest. You can also use several methods to reduce your interest rate, which we will discuss further in this article.

Banks offering low Interest Rates for Education Loans in India

Here’s a list of banks known for their student-friendly loans, along with their interest and moratorium terms for you to consider:

1. State Bank of India  

   • Maximum loan amount: Up to ₹3 crore.
   • Interest rate: Starts from 8.15%
   • Moratorium period: SBI offers an interest-free moratorium period of the course duration plus 6 months to 1 year.
     

2. HDFC Bank

   • Maximum loan amount: Up to ₹1.5 crore.
   • Interest rate: Starts from 9.50%
   • Moratorium period: HDFC Bank offers a moratorium period of the course duration plus 6 months to 1 year. Interest is charged during this period.

3. ICICI Bank

   • Maximum loan amount: Up to ₹3 crores.
     
   • Interest rate: Ranges between 10% to 14.50%
     
   • Moratorium period: ICICI Bank offers a moratorium period of the course duration plus 6 months to 1 year. Interest is charged during this period.

4. Axis Bank

   • Maximum loan amount: Up to ₹1 crore.
     
   • Interest rate: Ranges between 11% to 15.50%
     
   • Moratorium period: Axis Bank offers a moratorium period of course duration plus 6 months to 1 year. Interest is charged during this period.
     

5. IDFC Bank

   • Maximum loan amount: Up to ₹1.5 crores.
     
   • Interest rate: Starts from 9.50%
     
   • Moratorium period: IDFC Bank offers a moratorium period of course duration plus 6 months to 1 year. Interest is charged during this period.
     

6. Credila

   • Maximum loan amount: Depends on the requirement.
     
   • Interest rate: Ranges between 10% to 15%
     
   • Moratorium period: Credila offers a moratorium period of the course duration plus 6 months to 1 year. Interest is charged during this period.

7. Avanse

   • Maximum loan amount: Up to ₹1.25 crores.
     
   • Interest rate: Ranges between 10% to 16.5%
     
   • Moratorium period: Avanse offers a moratorium period of course duration plus 6 months to 1 year. Interest is charged during this period.
     

8. Auxilo

   • Maximum loan amount: Depends on the requirement.
     
   • Interest rate: Starts from 10.50%
     
   • Moratorium period: Auxilo offers a moratorium period of course duration plus 6 months to 1 year. Interest is charged during this period.
     

9. Incred
   

   • Maximum loan amount: Up to ₹80 lakhs or more.
     Interest rate: Starts from 11%
     Moratorium period: Incred offers a moratorium period of course duration plus 6 months to 1 year. Interest is charged during this period.
     

How to get the lowest Interest Rate on Education Loans?

These are some of the ways by which you can reduce your interest rate and the overall education loan cost:

1. Including Collateral:

   Including a collateral as security for the loan amount can lower the interest rate on an education loan, reducing the overall cost of the loan. Involving a collateral in the loan lowers the risk for the lender. Apart from lower interest rates, secured education loans also offer higher loan amounts, reducing the financial strain on students.

2. Government Subsidies: 

   The government offers various subsidy schemes for education loans to students. These schemes can make higher education more accessible to students. The Central Sector Interest Subsidy Scheme (CSIS) helps cover the interest on education loans during the moratorium period. This lowers the financial burden on the students.

3. Scholarships:

   Scholarships are one of the best ways to reduce the financial stress of the students. By covering a portion of the required amount, scholarships reduce the loan amount. This indirectly leads to lower overall interest payments, ultimately reducing the overall education loan repayment.

4. Strengthen profile:
   

   A strong profile can help you get a low interest rate on your education loan. You can strengthen your profile by aiming for a well-reputed university that is accepted by your lender. Also, include a co-applicant with a high income and credit score to further boost your profile. Include previous academic endeavors and any test scores in the application. This can help you get a low interest rate on your education loan.

Is it possible to get an Education Loan at zero interest?

No, getting an education loan at zero interest is not possible as it poses a financial burden on the lenders. Although education loans generally have lower interest rates, lenders do not waive off the interest completely. Education loans, just like any other credit product, are charged interest rates according to the lender.

While a student loan with zero interest is unattainable, the interest rate can be reduced under certain government schemes. Also, banks offer a moratorium period on education loans, which reduces the financial burden on the students.

Why are education loans with zero interest not available?

Although many students want to get an education loan at zero interest, it significantly affects the banks and the government. The reasons why zero-interest student loans are not offered are:

Financial strain on Lenders:

Banks and other financial institutes in India do not offer zero-interest education loans as it can cause a financial strain on them. Lenders would struggle to recover the operational costs, such as administration and loan processing charges, without charging interest on education loans. 

Offering loans at zero interest would make them lose money on education loans. This increases the risk for lenders and ultimately leads to losses. Lenders can lead to increasing their other costs to recover from the loss as a result.

Financial burden on Government: 

The government often offers subsidies under various schemes on education loans to provide financial stability to students. Education loans with 0 interest can pose a major financial burden on the government, especially in countries with huge student populations.

This leads to financial instability in the government budget. It can potentially reduce the government's ability to fund other services such as healthcare or social welfare.

Conclusion

Education loans help students fulfill their dream of pursuing higher studies in India as well as abroad. However, education loans come with a cost of interest on the loan amount. And many students want to know whether they can get an education loan without interest. These are loans that don’t charge interest on the principal loan amount.

This article provides key insights on education loans at 0% interest rate, their possibility, impact, and the banks providing education loans. It also covers various methods on how you can reduce the interest rate on your education loan to help you get the best rate.