Education Loan Interest Rate

Interest rate is the amount of money charged on the principal loan amount by a lender. If you borrow money for your study abroad journey, you will have to pay some monthly amount over and above the principal amount. Education loan interest rates can vary depending on many factors, such as the type of loan, the borrower's creditworthiness, and the lender's policies. In this context, understanding interest rates on education loans to study abroad is crucial to make informed decisions about borrowing for higher education.


Compare Education Loan Interest Rates to Study Abroad

Bank

Secured Loan Interest Rate

Unsecured Loan Interest Rate

Max. Loan Amount

UBI

10.5%

9.8%

Secured: 1.5 Cr

Unsecured: 50 lakh

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Axis Bank

9.9%

10.4 - 11.25%

Secured: 80 lakh

Unsecured: 40 lakh

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ICICI Bank

9.5%

10.4 - 11.25%

Secured: 80 lakh

Unsecured: 40 lakh

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IDFC First Bank

NA

11 - 12.5%

Unsecured: 50 lakh

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HDFC Credila

10.5%

11.5 - 12.5%

Secured: 1.5 Cr

Unsecured: 50 lakh

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Avanse

NA

12 - 13.5%

Secured: 1.5 Cr

Unsecured: 50 lakh

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Incred

NA

11.25 - 12%

Unsecured: 50 lakh

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Auxilo

NA

11 - 12%

Unsecured: 50 lakh

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Prodigy Finance

NA

11 - 12 USD

Unsecured: 1 lakh dollars

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Mpower

NA 

12 - 14 USD

Unsecured: 1 lakh dollars

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State Bank of India

Men-11.5% & 10.65% (with Rinn Raksha)

Women-10.65% & 10.15% (with Rinn Raksha)

Men-11.5% & 10.65% (with Rinn Raksha)

Women-10.65% & 10.15% (with Rinn Raksha)

Secured: 70% of collateral or 90% of requirement whichever is less

Unsecured: Doesn’t provide unsecured loan above INR 7.5 Lakhs

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Interest rate as in March 2023.

Rates can vary depending on borrower's profile.

Interest rate of secured loans is always lower than unsecured loans.


Factors Affecting Education Loan Interest Rates

  1. Applicant profile: The applicant profile includes elements such as previous academic performance if the student has previously worked, the past income and credit score are also taken into account.

  2. Co-applicant profile: A co-applicant/co-borrower guarantees loan repayment if the main applicant defaults on the loan. So, the co-applicants credit score and income play a crucial part in determining risk categorization and, thus, the interest rate given.

  3. Type of loan: Secured loans, are a low-risk loan type because the applicant will be pledging collateral. Since the applicant is providing the bank with a guarantee to back up his credit, the interest rate paid for this type of loan will be lower. Unsecured loans do not require security, thus, the interest rates charged for this type of loan are always on the higher side.

  4. Market Conditions: The prevailing market conditions, including the overall economic environment and interest rate trends, can also impact the interest rates of education loans.

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Types of education loan interest rate

Floating Interest Rate

  • Can increase or decrease during the loan term.
  • Influenced by changes in financial market conditions.
  • No fixed EMIs.
  • Hard to plan your payments as they are susceptible to vary.

Fixed Interest Rate

  • Remain constant during the loan term.
  • Not influenced by changes in financial market conditions.
  • Fixed EMIs.
  • Assist you in planning your payments in advance.

Education Loan EMI Calculator


I want to borrow at

a rate of % over year(s)

My course is month(s) long

Total Interest to be paid

0

Total Payment Principal + Interest

0

Your EMI per month will be

0


How is the Interest Rate Calculated?

SI = (Pxrxt)/100

Here

  • SI denotes the the Simple Interest.
  • P stands for the Principal Amount.
  • r stands for the Rate of Interest.
  • t stands for the number of years.

For example - you borrow INR 50,000 for 1 year at a 5% interest rate, then according to the formula, you owe INR 2500 as interest. When repaying the borrowed amount, you will have to make an extra payment of INR 2500 as a fee.

A = P (1 + r/n) nt

Here

  • A denotes the compound interest amount
  • P is the principal amount
  • r is the interest rate per annum
  • n is the number of times in a year the interest gets compounded
  • t stands for the number of years.

For example- you borrowed INR 10 lakhs at an interest rate of 10% for 5 years.

  1. Total interest to be paid - INR 4,97,916
  2. Total Payment (Principal + Interest) - INR 14,97,916
  3. EMI per month - INR 24,965


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When does interest in education loans start?

The interest on an education loan starts as soon as the amount is disbursed to the applicant’s account. During the study period, most lenders charge simple interest. After the study period + Grace Period, compound interest is charged.

Can an education loan interest be reduced?

Yes, it can be. Excited to know how? Well, there are various subsidies offered by the government to reduce the financial burden on students. A few of them are - Padho Pardesh, Dr. Ambedkar Central Sector Scheme, and Central Sector Interest Subsidy Scheme.

  • Dr. Ambedkar Central Sector Scheme - It is an interest subsidy scheme for abroad educational loans provided to promote the foreign education of Other Backward Classes and Economically Weaker Classes.
  • Central Sector Interest Subsidy - It is an interest subsidy scheme for economically weaker sections. If the family income is not more than INR 4.5 lakhs, the student can avail of the interest subsidy.
  • Padho Pardesh - Interest subsidy on education loan schemes to pursue abroad education, provided to students belonging to minority communities. (Please note that this scheme has been discontinued by the Government of India.)

How to apply for an interest subsidy on abroad education loans?

The subsidy can be availed by contacting the concerned bank/lender. You will have to submit an application and certain documents such as an original income certificate, interest subsidy agreement, student letter issued by the institute, self-declaration, and some additional documents.

Are there any tax deductions available on education loans?

Section 80E of the Income Tax Act of 1961 allows you to claim a deduction of interest paid on a loan acquired for higher education from taxable income. The deduction is allowed on the total interest amount of the EMI paid during the fiscal year.

What all expenses will be covered in the loan?

Education loans will cover the cost of your tuition fees, accommodation costs, study material expenses, and living expenses while pursuing a degree.

Can I get an education loan without any collateral?

Both public and private banks may give you an education loan without any collateral. However, the rate of interest will be higher.

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