Planning on taking an education loan for your Bachelor's or your Master's?
- Advisoira
- May 3, 2021
- 1 min read
Don't make this error.
The biggest mistake I've observed people doing when taking an education loan is to talk about the interest payment from the viewpoint of a monthly/annual interest rate.
Taking a monthly/annual interest rate as a base for understanding can create a wrong estimation for your EMI payments.
Consider 2 banks lending at the following annual interest rates-
Bank A - 7% and Bank B- 6.5%.
Hence for a period of 5 years and a loan amount of 10 lakhs, your annual EMI is ₹243890.69 for A and ₹240634.53 for B.
The annual interest rate takes into account only the fixed and a variable part of the interest component, thereby neglecting any further charges applied by the banks.
When taking an education loan, consider an APR (Annual Percentage Rate) as your base rate which includes your total cost of borrowing, including the interest rate and any fees or additional costs.
For the same scenario, the APR for Bank A can be 9% while that for Bank B can be 10.5%.
Thus your EMI now becomes ₹2,57,092 for A and ₹2,67,175 for B.
In any scenario, your monthly/annual interest rate would always be lower than an APR, hence, it is the most preferred way of selling an educational loan.
Cheers!
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