Strategies to Reduce Your Total Loan Cost: Taking out an education loan to study abroad or in India can be a necessary step to achieving life goals. However, education loans come with costs which you are required to pay in the form of interest rates, processing fees etc. Interest rates, fees, and other charges can increase over time, significantly increasing the total amount you repay.
Hence you should always know how to pick up the best rates on education loans so that you can save your hard-earned money during the tenure of the loan. Let’s check and understand some of the proven strategies to reduce loan costs.
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Improve Your Credit Score
Your credit score plays the most important role in determining the education loan interest rate you’ll receive on your education loan. Banks and financial institutions use it to assess your creditworthiness and risk level. By improving your credit score, you can qualify for an education loan with lower interest rates, which can significantly reduce the total cost of borrowing. Start by making timely payments, keeping credit card balances low, and addressing any errors on your credit report. A credit score of 750-850 is excellent, and you can get a high loan amount at a low interest rate.
Also Read: Check here some of the tips to find the best education loan refinancing rates and lenders
Shop Around for the Best Interest Rates
Research on interest rates provided by various banks and NBFCs. Don’t settle for the first loan offer you receive. Instead, shop around and compare interest rates and terms from multiple lenders. Even a small difference in interest rates can save you money throughout the life of the loan. Use online comparison tools or work with a reputable loan broker to find the best deal that suits your needs.
Consider Education Loan Refinancing
Education loan refinancing is one of the best options to save money as well as convert a secured loan into an unsecured loan. If you already have a loan with a high interest rate, consider refinancing to take advantage of lower interest rates. Loan refinancing involves replacing your existing loan with a new one that has better terms and conditions, such as a lower interest rate or a longer repayment period. Check the costs associated with refinancing, such as closing fees, against the potential savings to ensure it’s a better option.
Make Extra Payments
One of the most effective ways to reduce the total cost of a loan is to make extra payments or part payments whenever possible. By paying more than the minimum required each month, you can shorten the repayment period and save on interest charges. Consider using additional funds such as tax refunds or bonuses to make lump-sum payments towards your loan principal. Even small additional payments can make a significant difference over time. The bank or the lending institution will not charge interest over the amount which you will pay as part payment.
Also Read: Check here which one is better among education loan refinance and loan consolidation
Opt for Biweekly Payments
Instead of making monthly payments, consider switching to a biweekly payment schedule. By paying half of your monthly payment every two weeks, you’ll make 26 half-payments in a year, which is equivalent to 13 full payments. This extra payment each year can help you pay off the loan faster and save on interest costs. However, this also depends upon the bank or the financial institution whether it allows you to pay bi-weekly or monthly. This process may also involve an education loan restructuring process.
Avoid Unnecessary Fees
Before taking an education loan, it is very important to carefully review the terms and conditions to understand all associated fees. Common fees include origination fees, prepayment penalties, late payment charges, processing fees etc. However, most of the banks do not charge any early repayment charge for education loans. Look for lenders that offer loans with minimal fees or negotiate to have certain fees waived. Always make payments on time to avoid incurring late fees and damaging your credit score.
Consider Loan Consolidation
If you have multiple loans with varying interest rates, consolidating them into a single loan can simplify your payments and lower your overall interest rate. A personal loan for debt consolidation is one of the best options to save money you are paying as interest and other charges. This can result in significant savings over time, especially if you’re able to secure a lower interest rate through consolidation. However, be mindful of any fees or terms associated with consolidation and ensure it aligns with your financial goals.
FAQs
Your credit score is a key factor in determining the interest rate you’ll be offered on an education loan. A higher credit score helps you to secure a loan with a lower interest rate, which means you’ll pay less in interest over the tenure of the loan. By improving your credit score through responsible financial behaviour, such as making timely payments and keeping credit card balances low, you increase your chances of qualifying for lower rates and ultimately reduce your total loan cost.
Refinancing can be a beneficial strategy for reducing total loan costs, especially if you can secure a lower interest rate or better terms than your current loan. However, it’s essential to consider the costs associated with refinancing, such as closing fees and potential prepayment penalties, against the potential savings.
Biweekly payments can accelerate the repayment process and save you money on interest over the life of the loan. By making half of your monthly payment every two weeks, you’ll effectively make one extra payment each year.
When taking out an education loan, it’s essential to be aware of fees that can impact your total loan cost. Common fees include origination fees, prepayment penalties, and late payment charges. Origination fees are charged by lenders for processing the loan application and are typically a percentage of the loan amount.
Loan consolidation involves combining multiple loans into a single loan with one monthly payment. By consolidating loans, you may be able to secure a lower interest rate, resulting in reduced total loan costs over time.
This was all about the strategies to reduce your total loan cost. Reducing the total cost of a loan requires careful planning, diligence, and smart financial decisions. By improving your credit score, shopping around for the best rates, making extra payments, and avoiding unnecessary fees, you can minimize the amount you pay in interest and fees over the life of the loan.
To know more about education loans, 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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