The one thing that students shop for after they land admission in their desired educational institution is an overseas education loan. This is very important when you decide to take admission for a course and be financially prepared to pay for it. While shopping for a loan, one must consider the rate of interest. The type of interest rate on educational loans depends on the bank. Some banks offer a fixed interest rate throughout the loan repayment tenure. Others have interest rates that are pegged to the one-year Marginal Cost of funds based Lending Rate (MCLR). This can be reset at regular intervals, which would then affect the interest rate of the educational loan.
There are many factors that determine how much your Equated Monthly Instalment (EMI) will be on your education loan. Of the many factors, the most important ones are the Interest rate, the principal loan amount and the repayment tenure.
These three factors majorly affect your monthly payment of the loan and helps understand better which loan and respective tenure to go for.
1. MCLR (marginal cost of funds based lending rate) is the lowest interest rate that a bank or lender can offer. Most banks cannot offer interest rates lower than the marginal cost of funds based lending rate. However, certain exceptions can be made when allowed by the Reserve Bank of India (RBI).The MCLR is a reference rate or internal benchmark for the financial institution. Marginal cost of funds based lending rate defines the process used to determine the minimum home loan rate of interest. The MCLR method was introduced in the Indian financial system by the Reserve Bank of India in the year 2016. The MCLR system has replaced the base rate system that was introduced in the year 2010. Thus, renewal of credit limits and sanctioning of loans is done as per MCLR norms.
2. 80 E Tax Benefit - There are tax benefits too. Interest paid on education loan can be claimed as deduction from income of borrower (student) as per Section 80E of the income Tax act, 1961, however no rebate is available for principal repayment. Rebate is only available for interest paid on loans for education.
3. Repayment of Interest Rates - The interest rate repayment is also an important factor while considering the lowest interest rates as well as flexible options as a student. Financial institutions like state bank of India and bank of Baroda provide complete moratorium period during the study and hence are a very lucrative options for students who are looking to start repaying the loan after they complete their graduation.
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Now this brings us to our burning question: which is the financial provider which provides the lowest interest rates for overseas education loan. The same is in terms of interest rates and processing fees. Let's look at a few scenarios
1.Education Loan Bank of Baroda – in case the student has a collateral and the university falls in the preferential list of universities, Bank of Baroda is the most economical loan option available as the MCLR rate for education loan is further discounted by 0.75%. The processing fee also of INR 10,000 is refundable on first disbursal. Hence bank of Baroda becomes the most economical overseas education loan option for collateral loans.
2. ICICI Bank – ICICI bank provides lowest interest rates for unsecured loans between 10 to 11%. They have a list of universities categorised as A1/A2/A3/A4. Hence for students looking at non-collateral overseas education loans ICICI bank is very competitive and rates and processing fees.
3.Prodigy finance – For an overseas education loan in case a student is without a cosigner prodigy provides very competitive rates between 8% to 10% In USD. For a student who does not have a cosigner, prodigy is the most viable loan of a loan provider.
4.US banks – students who have valid US cosigner can use loans from US banks which provide interest rates at around 2% to 6%. This is by far the most economical education loan available for study abroad experience.
We at Edu loans are the most comprehensive education loan platform having over 15 lenders and hence can provide you the Lowest interest rates for your overseas education loan depending on your profile and various eligibility parameters from financial institutions. Please reach out to us to be guided by a dedicated education loan officer.
