Pursuing higher education abroad is a dream for many Indian students. Education loans to study abroad are one of the most preferred options today and are easily available. However, managing these loans efficiently is very important and should be planned properly. In this blog, we will explore two popular options for Indian students: Education Loan Refinance and Loan Consolidation, and discuss the pros and cons of each.
Table of contents
Education Loan Refinance
Ram took a loan from Bank A with a 13% floating interest rate for 15 years. After 1 year of repayment, the interest rate of the loan was increased to 16% due to a rise in inflation as the floating interest rate is subject to revision every quarter. Now Ram realized that due to the high interest rate, the loan is getting costlier. In this case, Bank B offered Ram a loan refinance at a lower interest rate. By taking this loan he will foreclose the ongoing loan and will start repaying the new loan. So, education loan refinancing refers to getting a fresh loan with another lender at a low interest rate to close the ongoing loan as it is becoming costly.
- With a longer repayment period, your EMI amount will be lower than compared to the existing one.
- There are chances that you will get a loan at a fixed interest rate which will not be affected by the changing economic environment.
- As the new EMI is lower it will be easy for you to make timely payments which will ultimately help you to improve your credit score.
Also Read: How to Find Best Education Loan Refinancing Rates and Lenders
Education Loan Consolidation
Loan consolidation is a financial tool used to convert multiple loans into one single loan. For example, Laxman took an education loan to study medicine in the UK. After finishing the course he decided to pursue a masters and took another loan. New Laxman is paying two EMIs with a high rate of interest which is creating a financial crunch. Here, Laxman can take a personal loan for debt consolidation from another bank to close both the existing loans. This will save him the overall repayment cost and he will also be able to make timely payments as there is only one EMI to pay every month.
- A lot of banks in India offers personal loan for debt consolidation through which you close your existing loans, credit card bills and other debt.
- You will get the loan at a fixed rate of interest with a longer repayment period.
- Single EMI payment will help you to manage your finances effectively and your credit score will also increase when you make timely payments.
Also Read: Benefits of Education Loan Refinancing
Difference between Education Loan Refinancing and Loan Consolidation
Education loan refinancing and loan consolidation are two different things. When you choose to refinance your education loan you are simply switching your lender for better interest rates. However, loan consolidation is done to convert multiple loans into one by closing them to manage repayment properly. Let’s understand some major differences between the two:
| Education Loan Refinancing | Loan Consolidation |
| Available as an Education Loan | Available as a Personal Loan |
| Mostly comes with a Floating or Fixed Interest Rate | Fixed Interest Rates |
| Helpful to close existing education loans and start new ones with low interest rates | Helpful to close multiple loans and start one loan with better repayment terms and interest |
| Students mostly choose a new bank/lender | You can either change your lender or ask for a personal loan for debt consolidation with the existing banker |
| Available with a collateral when you take a high amount of loan | Loans are approved without collateral |
| Nil or Low Processing Fee | High processing fee (up to 5-6% of the total loan amount, may vary) |
Best Time to Apply for Education Loan Refinance
It is very important to analyse the exact time to execute the plans which you made to manage your finances properly. If you have just graduated and started your job then start analysing the interest rate trends. In a rising interest rate environment, your bank will increase the interest rate on your education loan as the education loan is mostly available with floating interest rates which are subject to revision every quarter. In this scenario start looking for banks and financial institutions who are offering you a low rate of interest and suitable repayment structure.
- Always start your repayment of your education loan early as when you apply for a loan transfer the existing loan repayment must have been started.
- Pay all your EMI timely and make sure your credit score is good before applying for an education loan refinance.
- Always apply for education loan refinance after analysing and comparing the existing terms and conditions with the ones offered by the new bank/lender.
Best Time to Apply for Education Loan Consolidation
Have you taken two or more loans? Are you paying multiple EMIs for your education loans and credit card bills? If yes then it’s high time to get a personal loan for debt consolidation. Paying multiple EMIs with high and fluctuating interest rates makes it difficult to manage the finances properly. You will always be worried about keeping the account funded for the EMI repayment if you don’t have sufficient monthly income. To overcome this issue, you must immediately apply for loan consolidation which will help you to close all the existing loans and you will be paying only one EMI with better repayment terms and low interest rates.
- Banks in India provides personal loan for debt consolidation at affordable interest rates.
- Apart from banks, you must consult a reputed NBFC with a strong track record
- Compare the repayment cost with existing loans and after loan consolidation and then make your decision based on what you find cheaper and convenient.
FAQs
Both education loan refinance and loan consolidation have their own merits and demerits. If you getting low interest rate offers for a balance transfer loan then go for it. If you are dealing with multiple loans then start your planning for loan consolidation.
If you have taken two or more loans and finding it difficult to manage the repayment for multiple loans then applying for the debt consolidation loan is a better idea.
The interest rate for a personal loan for debt consolidation varies from one bank to another. Usually, the bank offers interest rates ranging from 10% to 20% or more depending on the eligibility criteria, repayment period and other terms and conditions.
Education loan refinance and loan consolidation are both valuable tools for Indian students studying abroad to manage their debt effectively. While refinance offers the potential for lower interest rates, consolidation simplifies repayment. Ultimately, the choice between the two will depend on your financial situation and objectives.
To know more about education loan consolidation, refinance, 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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