Education Loan Refinancing: What You Need to Know

Education Loan Refinancing
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Studying abroad has become very easy these days primarily due to various education loan schemes. When you plan to study in Australia, the USA or any other country you can easily get an education loan of an amount up to INR 1.5 crore or even more. While repaying your education loan it is important to understand how to handle the repayment when the interest rate is rising. Most of the education loans in India come with a floating rate of interest which can make your loan costlier than it was in the beginning.

Let’s understand how education loan refinancing can help you make your loan cheaper than the existing cost. 

What is Education Loan Refinancing?

Education loan refinancing is when you take a fresh loan from the same or another bank or financial institution to get better interest rates and repayment structure. For example, you have an existing education loan which you took with 14% interest. Due to the rise in interest rate, your loan is currently attracting a 16% interest rate. Here, another bank will offer you a loan refinancing or takeover loan at say, a 13% interest rate. When you take this fresh loan your new lender will pay the remaining loan amount to close the existing loan and you will now be paying EMIs for the refinanced loan at lesser interest. In this entire process, you saved a 3% interest rate and got better repayment terms. 

  • For availing of the new or the take-over loan your credit score must be good i.e. above 650 or 700 subject to the terms and conditions of the new lender/bank.
  • You must calculate the entire repayment amount and compare it with the existing loan to figure out the best-suited offer for you.
  • Try to negotiate with your new lender for easy repayment options and better EMIs.

Also Read: Government Education Loans to Study in USA

Benefits of Education Loan Refinancing 

Education loan refinancing is the best option in a rising interest rate environment. An education loan with a floating rate of interest is usually subject to revision after each quarter. Hence, you can always look for take-over loans with lower interest rates and affordable EMIs. Let’s check some of the benefits of education loan refinancing:

  • Lower Interest Rates: Education loan refinancing allows you to secure a lower interest rate than the existing one, saving you money over the tenure of the loan. This will ultimately reduce your monthly EMI amount and you will be able to manage your finances efficiently.
  • Simplified Repayment: Refinancing can consolidate multiple loans into one, simplifying your repayment process and making it easier to keep track of payments. Also, you will have to make EMI payments collectively which will increase the transparency in the repayment.  
  • Flexible Repayment Terms: You may have the option to choose a new repayment term, which can help align your loan payments with your financial goals and budget. You can even negotiate with the date of auto-debit for EMI payments as per your requirement.
  • Improved Credit Score: When you get your loan refinanced then it will reduce your monthly EMI amount subject to the new terms and conditions. Hence you will be able to make timely payments on a refinanced loan and this will show a positive impact on your credit score.
  • Release of Cosigner: If you had a cosigner on your original loan, refinancing can potentially release them from their obligations. This happens because now you might have a job with a good salary and the new lender will analyse your repaying capacity. However, this will be based on the terms and conditions provided by the new bank. 
  • Variable or Fixed Rates: You can often choose between variable and fixed interest rates, giving you flexibility in managing your loan. You can negotiate with your bank over the new interest rate and its category. Always ask for a fixed rate of interest if your lender is allowing you to do so. 
  • Potential Savings: Overall, refinancing can save you money by reducing the total interest you pay over the loan tenure. With education loan refinancing you will be able to close the loan comfortably and can plan for your upcoming goals like a car or a home. 

Education Loan Refinancing Eligibility Criteria

Every bank has its terms and conditions and eligibility criteria for refinancing education loans. However, there are certain things which will apply to most of the banks offering a takeover loan. Let’s check the basic eligibility criteria for education loan refinancing:

  • The entire loan amount shall have been paid and no more disbursement shall be pending with the existing bank
  • The loan repayment shall have been started and the payments of EMIs are regular in the books of the existing lender. 
  • The borrower should be a major (above 18 years of age) at the time of the loan takeover application
  • The application must be a first-time loan takeover application. 

Also Read: Inflation and its Effects on Education Loan

How to Apply for Education Loan Refinance?

Looks like you have finally decided to get your education loan refinanced hence making it cheaper. So here are some easy and quick steps which you need to follow to get a take-over loan:

  • Request your existing lender for a foreclosure application form and check the exact foreclosure amount which you need to pay, along with early repayment charges on education loan.
  • Approach a new bank offering easy take-over loan or loan refinancing and check all their terms and conditions and rate of interest.
  • Apply for a take-over loan with the new bank and complete the foreclosure process with the existing lender/bank.
  • The new bank will take some time for the paperwork as they have to pay the foreclosure amount to the existing lender. 
  • Check all the details of the new loan properly like EMI amount and date, overall loan cost etc.

Note: Always compare the total repayment amount offered by both the bank/lender which you are going to pay against your education loan. 

List of Indian Banks Offering Easy Take-over Loans

There are a lot of government banks in India that offer easy loan refinancing or take-over loans for students. Check a list of some of the best banks with attractive interest rates on take-over loans:

Name of the BankMaximum Repayment Period Rate of Interest
State Bank of India (SBI)15 yearsStarting from 8.15% p.a.
HDFC Bank15 years(HDFC Credila’s CBLR + Spread)% per annumCurrent CBLR- 13.55%
IDFC First BankAs per the loan amount1% lesser ROI than existing (as per the bank’s website)

Note: The interest rate keeps changing from time to time. Contact your bank for the best offer on the date when you are applying for an education loan refinancing. 

FAQs

Is it good to get education loan refinancing?

Education loan refinancing is a good option to make your existing loan cheaper. You can get a low-interest rate, easy repayment structure and other benefits by getting a loan refinance option.

Which bank is best for Education loan refinancing?

Choosing a bank for education loan refinancing depends on your requirements. In India, SBI offers easy options for refinancing. However, always check and compare the terms and conditions of multiple lenders. 

What is a loan takeover?

A loan takeover is the same as a loan refinancing or balance transfer. In this process, you close a loan with the existing lender by paying them the foreclosure amount which you get from a new lender with a better rate of interest and repayment policies. 

Loan refinancing is a smart choice for students who have started repaying their education loans. You have the option to make your loan cheap thus helping you to manage your financial planning accordingly. 

To know more about education loan refinancing, 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. 

Related Blogs
Documents Required for Unsecured Education Loans
Difference between a Loan Sanction Letter and a Loan Disbursement Letter
Government Education Loans to Study in Australia 

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About Shekhar Suman

Shekhar is a versatile writer with a passion for sharing knowledge and creativity. With expertise in crafting informative blogs on study abroad and finance, Shekhar helps readers navigate the complexities of education and financial planning. Most of his writings blend the practicality of finance and the beauty of language, making a meaningful impact in both spheres. Beyond his professional pursuits, he finds solace in the writing Shayari.

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