One of the most common scenarios that any lender can face while dealing with SBI Education Loan is the increase in the interest rates that eventually leads to more EMIs. This situation is more common with borrowers who deal with a floating rate of interest, especially from NBFCs. If you are a student who wishes to take an education loan for study abroad but is unaware of how the rate of interest changes, then read this blog before making any decision.
Why Education Loan for Abroad Interest Rates Fluctuates?
Most banks offer an interest rate calculated by the formula Interest Rate = Spread + Index
Spread, the fixed part is between 1% and 4% for many lenders. The variable part, the index, is predicated on the MCLR (marginal cost of funds-based lending rate), which is set by the banks on the idea of varied factors including operating costs, a period of the education loan for study abroad, and therefore the incremental cost of funds. Each bank calculates its own MCLR. This alteration in MCLR is the reason behind the fluctuating rate of interest. Many popular banks clearly mention their fluctuating interest rates on education loans within the terms and conditions that always get ignored by the scholar.
This stands true for many other banks that provide education loans to students. Despite the recent guidelines from RBI to link the speed to the repo rate, banks (except Bank of Baroda) haven’t made the specified changes in their structure. The case is way worse for NBFCs. In their case, they will lend at any rate as per their desired profit and are liberal to change the speed of interest consistent with their changing operating profit or market. In such a scenario, the newly launched fixed rate of interest on SBI Education Loan for study abroad has come as a bright side within the cloud for all students who are wary of the fluctuating rate of interest on education loans.
SBI Fixed Rate Education Loan for Study Abroad
Let us take a better check out this offering by the pioneers of education loan for study abroad in India and obtain a clearer picture of what’s the rate of interest for education loan in SBI. Started in November 2019, this scheme is that the first of its kind in India for any bank that gives education loans. during a market where all other lenders offer education loans at a floating rate of interest, SBI has decided to launch its fixed-rate education loan scheme in order that students don’t need to worry about fluctuations within the rate of interest on their education loan within the future. Under this scheme, the education loan will have a stable ROI throughout the loan tenure. for instance, if an individual takes a loan today at 9.2%, the rate of interest will remain an equivalent throughout until repayment, regardless of currency fluctuations or the other factors. this may make sure that students repay exactly what they plan and prepare themselves for.
Difference Between SBI’s Old Floating Interest Loan and New Fixed Interest Loan
To understand the new scheme better, allow us to compare the new scheme, i.e., the SBI fixed interest loan scheme with the normal SBI floating interest loan.
For this, allow us to take an example of a student who began with the repayment of his education loan for study abroad of INR 40,00,000 in October 2017 when the education loan rate of interest of SBI was 9.7% (as discussed initially and planned by the student). Let the repayment tenure be 10 years. Since the loan has fluctuating interest rates, allow us to take a glance at the table below depicting increased interest rates and their impacts on the monthly and overall EMIs to be paid.
Time Slots
ROI
EMI as Per New ROI
2017
9.7%
61,059
March 2018
9.85%
61,583
June 2018
9.95%
61,935
September 2018 — June 2019
10.2%
62,819
So, as are often inferred from the aforementioned table, the scholar had to pay a complete EMI of INR 12,41,220 until June, i.e., 20 months. Had the ROI been fixed at 9.7%, the scholar would have had to pay INR 12,21,180 till June 2019. this is able to have saved him from paying INR 20,040 extra over 20 months. albeit this difference might sound minuscule, it might add up and become a considerable amount for the whole loan. And if the principal loan amount is higher, then this difference would be even higher.
This is true not only for SBI education loan but also for all other public and personal banks and NBFCs. within the case of NBFCs, this difference is even higher — sometimes as high as 3 times — since the magnitude of fluctuations is higher in NBFCs.
Now that you simply have understood how fluctuating ROI affects your EMIs, you ought to realize what the new announcement for SBI rate of interest in education loan is. during this new scheme, students can pay a hard and fast EMI that doesn’t fluctuate. Hence, financial planning and management become easy. Students pay an equivalent interest within the last month of their repayment tenure as within the first month. As mentioned within the above example, the scholar who takes an education loan of INR 40,00,000 at 9.7% ROI with 10 years of repayment tenure will need to pay an EMI of INR 61,059 from the primary month to the last month of his/her loan repayment tenure.
What Eduloans Recommends?
Eduloans, Indias.s first and only education focused financing platform, recommends students to request a callback and esquire about the fixed rate of interest education loan scheme launched by SBI because the bank offers rock bottom rate of interest among all lenders. The bank also accepts third-party collateral just in case a student doesn’t own collateral to supply for the loan. Features like these and therefore the simple financial planning and management (of course) make us recommend this scheme to all or any of our students.