How to Reduce Repayment Cost of Education Loan

January 29, 2020

How to Reduce Repayment Cost of Education Loan

An increasing number of parents in India now consider taking a loan for the higher education of their children. Read this post to know a few effective ways of reducing the repayment cost of Education Loan.

Thanks to growing opportunities coupled with low-interest rates and exciting offers from banks, Education Loan is increasingly becoming popular among Indian students. But while it is now easier to get a loan for higher studies, most parents and their children struggle with repayment. To help make the repayment more affordable, here are a few effective tips that can help reduce the repayment cost of such loans.

  • Prefer loan with collateral: While most banks allow you to take student loans without collateral, opting for a secured loan with collateral (home or any other asset) can turn out to be a cheaper option. If you do own a residential property or have investments in Fixed Deposits (FDs) or shares, it is better to go for a loan with collateral. It not only increases your prospects of getting a loan from the bank, but secured loans enjoy a preferential interest rate, which can reduce the overall repayment cost of the loan.
  • Pay full EMI during the moratorium period: Most people know that Education Loan repayment only begins when your child completes the course. But do you know that there is also a moratorium period, generally of 6 months, after course completion? You can only pay the interest part of the loan during this period. But if you are looking to repay the loan as quickly as possible, you can consider the option of repaying full Equated Monthly Instalment (EMI) (principal + interest) during this moratorium period. This will ensure that the total loan amount starts reducing right from your first EMI. This can help you save a decent amount of money in interest payments.
  • Go for a shorter tenure: Unsecured Education Loans are generally available for a duration of up to 8 years and secured loans for up to 10 years. While longer tenures could help reduce the monthly EMIs, it would significantly increase the total interest you pay on the loan. Thus, it is often recommended that you should go for a shorter tenure as much as possible. But make sure that you don’t commit for something you will not be able to afford in the longer run. You can use an Education Loan calculator to get a better idea of how loan tenure could impact the overall loan repayment.
  • Take advantage of tax benefit under Section 80(E): When you take a loan for education, you are eligible for tax deduction under Section 80(E) of the IT Act on the interest you pay towards the loan. The best part is that there is no limit on the total deduction. You are allowed to get a deduction of the entire interest amount you have paid against an Education Loan in a financial year. This benefit is available for Education Loans taken for yourself, your spouse, children and even for the legal guardians of a student.
  • Interest subsidy for eligible borrowers from EWS category: To encourage higher education, the HRD Ministry has also launched an interest subsidy scheme for borrowers from Economically Weaker Section (EWS) category. If your household income is less than Rs 4.5 lakh in a year, you might be eligible for this interest subsidy available for loans taken for education. Most of the scheduled commercial banks are eligible for this scheme. You can get in touch with one such bank to know more about the scheme.

Building a bright and happy future with Education Loan Education is extremely important and is the only reliable way of building a successful career. Apply for Education Loan online to fund the higher studies of your child and make use of the above tips to save more on repayment.

Apply for an Education Loan online for further studies in India.




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