The cost of pursuing higher education has increased with changing times and rising inflation. This makes it essential for people to acquire student loans to pursue higher education. Student loans come with several benefits which make them attractive for students. One of the most critical factors in a student loan is the interest rates offered by these loans. These interest rates decide the additional amount one needs to pay while repaying the loan. This article discusses the benefits of student loan interest rates and the factors affecting student loan interest rates.
What are Student Loans?
Student Loans are the financial assistance one seeks to avail a decent education. These loans come with competitive interest rates and flexible repayment options. Also, they are offered by many online lenders and lending apps which offer a variety of options to choose from.
Factors Affecting Student Loan Interest Rates
Various factors affect student loan interest rates which makes fluctuations in these rates. These factors are essential to be understood in detail because they help you choose the interest rate that would best suit your needs.
Credit Score
A credit score is the score assigned by lenders to borrowers based on their repayment ability. This helps to calculate the return on investment on your loan. The higher the score, the lower the interest and vice versa.
Loan Amount & Tenure
A loan amount also determines the interest one needs to pay on the loan. A higher loan amount will have a longer loan tenure which often involves higher risk. Therefore, lenders consider credit risk to calculate student loan interest rates.
Educational Institution & Course
The educational institution and course chosen by the applicant also affect the interest rate. If the university ranks in the list of top 100 to 200 universities, the interest rate would be lower and vice versa. Therefore, one must choose top universities to get lower interest rates.
Co-Signer
Education loans applied with co-signers help get lower interest rates. This is because the co-signer takes full responsibility for repaying the loan. This reduces the risk factor for the lenders and they offer concessions while levying interest rates.
Collateral
Education loans are mainly unsecured higher interest rate loans. Banks don’t ask for any collateral for such loans which can be used if the borrower defaults payment. Therefore, these loans come under the non-performing assets category which leads to losses.
Tips to get a Suitable Student Loan with a Loan App
Student loans are offered by different online lending apps. However, their terms and conditions differ from each other. This makes it important to conduct thorough research on each education loan app and the interest rates offered by them to choose the one that might suit your needs best.
Consider Moratorium Period
The moratorium period is the time duration between the end of the student’s course and the start of the repayment period. This period is usually in the range of 6 to 12 months, allowing students time to search for employment. Choose the lender that suits your long-term goals.
Loan Margin
Loan margins are the percentage of loan payments that a student needs to make by themselves without using a loan. These margins are usually offered in study-abroad loans. A high margin states that one must have enough savings to pay the required amount.
Exchange Rate Fluctuation
When one takes a loan to study abroad, one needs to consider the foreign currency exchange rates. These rates keep fluctuating which can impact the loan amount and the repayment instalments.
Tax Benefits
One of the significant benefits offered by student loans is that borrowers can claim deductions on interest paid for education loans. This provision is offered under section 80 E of the Income Tax Act.
Interest Rates
Compare interest rates offered by various lenders, this helps to choose the lender that is offering the lowest interest rate. A low interest rate helps to reduce the total repayment amount which helps choosing the best loan according to your needs.
Tie-ups Between Educational Institutions and Lenders
One can also opt for loans that are offered by one’s college or institution. This is because colleges often have tie-ups with lenders which helps to get a loan smoothly. In addition to this, these tie-ups help get better loan terms.
Collateral
Some lenders ask for collaterals and some don’t. Check which of them does and go through the terms and conditions of the loan. This helps to thoroughly understand the collateral requirements.
Estimated Future Income
Conduct thorough research about the salaries offered by the institutions that you’re targeting. This helps to plan your EMI and loan tenure based on your estimated monthly income which further helps avoid repayment problems.
Conclusion
Student loan interest rates are one of those important factors that must be considered before choosing a lender. This is because it helps you lower your repayment amount and reduce your financial burden. Various factors affect these rates such as credit scores, loan amount and tenure, etc which must be considered before choosing a lender. Reputed loan apps such as Tata Capital are offering these loans with competitive interest rates which makes them a suitable option for low-income students.