Indian students often prefer education loans to study abroad to manage their expenses like tuition fees, accommodation fees etc. While managing multiple loans can be challenging, student loan consolidation is one of the best options that can simplify the repayment process. However, there are myths and misconceptions surrounding loan consolidation that might confuse students from choosing this financial strategy. In this blog, we’ll debunk some common myths and explain the benefits of student loan consolidation for Indian students studying abroad.
Table of contents
- Myth 1: Loan Consolidation Increases the Total Debt
- Myth 2: Loan Consolidation Harms Credit Score
- Myth 3: All Loans Are Eligible for Consolidation
- Myth 4: Loan Consolidation Results in Loss of Benefits
- Myth 5: Fixed Interest Rates Are Always Higher
- Myth 6: Education Loan Consolidation is the same as Education Loan Refinancing
- FAQs
Myth 1: Loan Consolidation Increases the Total Debt
One of the prevailing myths about student loan consolidation is that it increases your overall debt. This is not true at all. Consolidation merges your existing loans into a single loan, usually at a weighted average interest rate. It doesn’t increase your total debt but it simply simplifies the repayment process. When you take a personal loan for debt consolidation you just need to pay one EMI at a fixed interest rate thus saving you the cost of repaying multiple loans. Check with the example shown below:
| Type of Loan | Major Factors | Comparison (INR) |
| Repayment of 2-3 separate loans | High EMI amount Floating Interest Rates make the loans costly High Chance of delayed payments as managing multiple loans is difficult Shorter Repayment Period Risk of drop in credit score | Loan 110 lakh @ 13% p.a. for 5 years, EMI= 22,753 Loan 25 lakh @ 15% p.a. for 5 years, EMI=11,895 Loan 33 lakh @ 14% p.a. for 5 years, EMI=6,980 Net EMI: 41,628 |
| Repayment of Single Loan after Consolidation | Comparatively low EMI amount Shorter Repayment Period Fixed Rate of Interest Low chance of delayed payment as one EMI is easy to manage Positive Impact on Credit Score | Total Loan Amount= 18 lakh @ 12% for 10 years Net EMI= 25,825 |
Here, we can see that the EMI amount is low after loan consolidation and the repayment period is also suitable. The net difference between the EMI is INR 15,830 which is ultimately your saving.
Also Read: Pros and Cons of Student Loan Consolidation
Myth 2: Loan Consolidation Harms Credit Score
Loan Consolidation cannot damage your credit score automatically. It can help you maintain a healthy credit score by ensuring timely payments. A single consolidated loan can be easier to manage, reducing the risk of missed payments and late fees. When you get the loan at lower interest rates and longer repayment periods the EMI amount will be less which you can pay easily. Timely repayments get recorded in the credit history and it helps to increase your credit score.
Myth 3: All Loans Are Eligible for Consolidation
Not all loans are eligible for consolidation. For Indian students studying abroad, most government and private education loans can be consolidated. However, certain loans may have restrictions. It’s essential to consult your lender, bank or financial advisor to determine which loans can be consolidated. Usually, for your ongoing education loan and any other type of loan, you can get a personal loan for debt consolidation in India subject to eligible criteria.
Also Read: Impact of Moratorium and Grace Period in Education Loan Refinancing
Myth 4: Loan Consolidation Results in Loss of Benefits
Another misconception is that education loan consolidations will lead to the loss of certain government benefits, such as income-driven repayment plans or loan forgiveness programs. While it’s true that some benefits may be forfeited, consolidation may still be the right choice for students who prioritize simplified repayment over these benefits. Also, loan forgiveness is not at all guaranteed in India. There is a negligible chance of education loan forgiveness especially in the case of study abroad.
Myth 5: Fixed Interest Rates Are Always Higher
Student loan consolidation often provides borrowers with fixed interest rates as most education loan in India comes with a floating interest rate. However, fixed interest rates offer stability and predictability. It’s important to consider your risk tolerance and financial goals when deciding between fixed and variable rates. The interest rate on your education loan may get increased by the bank depending on the inflation rate.
Myth 6: Education Loan Consolidation is the same as Education Loan Refinancing
Education loan consolidation and loan refinancing are two different things. Refinancing is generally taken to get a low rate of interest in a rising interest rate environment. You switch your lender and the loan gets transferred to a new lender with a revised EMI amount and repayment terms. On the other hand, Loan consolidation is when you take one loan to close two or more existing loans to reduce overall loan costs. Also, you don’t need to get a fixed rate of interest while refinancing but when you take personal loans for debt consolidation you can get fixed interest rates.
FAQs
When you have 2 or more EMIs to pay every month against your education loans then it will keep you under stress. It is not always easy to manage 2-3 EMIs that too with a floating interest loan. Hence, loan consolidation is a better option to convert your multiple EMIs into one which is more affordable.
When you have two or more loans and credit card bills to repay then loan consolidation is a better option.
Loan consolidation will convert your multiple EMIs into one single EMI of a lower amount. Due to this, you will be able to pay your EMI timely without any hassle and this will ultimately increase your credit score.
To know more about education loan consolidation, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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| How to Apply for Education Loan Refinancing |
| Amortisation in Education Loan Refinancing |
| Document Required for Education Loan Refinancing |
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