Floating Interest Rates in Education Loan

    Updated on: 21 Oct 2023 10 min read

    what are floating interest rates on education loan


    When you get an education loan, you will plan your monthly EMI and set a budget. But as a surprise to you, sometimes you will see a lower EMI to be paid; other times, it will be higher than your monthly budget. You might wonder what affects your education loan EMI. And here comes the concept of floating interest rates. 

    The floating interest rate is a kind of interest on loans highly dependent on the financial market conditions. As the name suggests, they float per the changes, sometimes favorable to the borrower and vice versa at other times. 

    Interest on education loans is usually calculated as floating. It means that in the 10 - 15 years repayment period, a student borrower will repay the EMI in irregular installments. While floating interest rates are better for loans with longer repayment periods, a fixed interest rate is best suited for short-term loans.

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    Frequently asked questions

    Can I choose floating interest rates over fixed for every lender? 

    Generally, the interest rates for education loans are floating for all lenders. However, some lenders would charge a fixed interest for education loans. Contact your lender to clarify whether you can get an education loan at a floating interest rate. 

    Are floating interest rates applicable to secured and unsecured education loans? 

    The floating nature of interest applies to secured and unsecured education loans alike. However, compared to unsecured loans, secured loans will have a lesser interest rate due to the involvement of collateral security. As the interest rate is MLLR + A% (A= component decided by the lender), the lender’s component in the total interest rate will be slightly lesser for secured education loans. 

    What are the major changes that affect the floating interest rates? 

    The floating rate of interest in loans is affected by many factors, some of which are unpredictable. Changes in the following are some factors will affect the interest rate of loans: 

    • Economic conditions
    • Reserve Bank policies
    • Market competition
    • Government policies and regulations
    • Flexibility of the financial market

    Is it possible to predict fluctuations in interest rates? 

    To a great extent, the market conditions are predictable for interest rates. But unpredictable situations like a pandemic or war may influence economic activities. In such cases, the fluctuations are beyond the predictions by experts. 

    How can I compare two education loans with floating interest rates? 

    It is easier to compare the floating interest rates of two lenders. The effective income rate is determined by adding the MCLR and a fixed component. The lender determines the fixed component based on various factors. You can compare the effective interest rates and choose the better education loan option. 



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Written by Rahul

A vampire hunter, a renowned archaeologist, and an Oscar-winning filmmaker... Rahul is none of them. He is just a curious soul whose interest in education and finance sectors goes beyond his journalism degree and the monthly salary.


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Reviewed by Aman Jain

Aman Jain graduated from IIT Kanpur, and currently functions as the CMO at GyanDhan. He is deeply passionate about creating equality in higher education and has directly interacted with 2 Lakh students in his 8-year-long journey.


Specializes in:
Education loan , Study Abroad Admissions


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GyanDhan is India's first education financing marketplace.



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