An education loan is provided by various banks and financial institutions at attractive interest rates for studying in the country and abroad.
However, with the Reserve Bank of India (RBI) opting rate hike cycle to control inflation, the interest rate on education loans has also witnessed a rise in this fiscal year.
Here’s the lowdown on a few steps to undertake in order to repay an education loan early as well as with ease.
Opt for the right repayment plan: The lender is likely to offer a choice of various repayment options, go for a plan that suits the budget. It is important to consider the duration of the moratorium in this regard. This way, an individual is aware of the time at hand to make arrangements for funds before the first equated monthly installment (EMI) begins. The idea is to choose a plan that doesn’t burn a hole in the pocket while paying higher EMIs
Go for a shorter loan tenure: This way, while the EMI paid would be on the higher side but an individual would save significantly on interest paid toward the education loan.
However, this in no way means that one should go beyond their means and choose unaffordable EMIs. Instead, choose the shortest possible tenure that remains easy to manage. In this regard, an education loan EMI calculator can aid in understanding the monthly payments that one can afford.
Initiate the process for automatic payments: Opt for automatic debits from a savings account in order to avoid missing out on loan payments. This way, one is saved from paying any missed EMI penalties as well helps in maintaining a healthy credit report, too.
Pay off interest during the moratorium: It is important to note that payments do not begin as soon as one receives the funding for an education loan. They start only once the moratorium period, which is either six months or one year, is completed. While the payments do not start until the end of the moratorium, the interest on an education loan begins to accumulate from the moment one receives the funding. A prudent move would be to start making payments toward this interest while one is still studying. For instance, one can take up a part-time job, without stretching one’s means, while being still in college and divert the income for paying the education loan.
Direct extra payments toward the education loan: Any extra cash, which could be a bonus at work or some money received as a gift from family, could be considered for making a larger payment toward the education loan.
Before taking an education loan, clear any doubts related to the pre-payment penalty if any with the lender and also read the instructions on the loan application form, especially those in the fine print.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.