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What are the interest rates for educational loans and how are they calculated? - 5-Mar-2008
The interest rates vary significantly from bank to bank. It is usually determined on certain slabs. For instance, for loans up to Rs. 25,000, the rate of interest would be 12 per cent, for Rs 25,001 to Rs 2 lakhs, 14 per cent, and for loans greater than Rs 2 lakhs, it would be 16 per cent. The interest rates could be fixed or variable. A fixed interest rate means that the rate of interest for the entire tenure of the loan would remain the same, whereas a variable interest rate, which depends on the Prime Lending Rate (PLR) set by the Reserve Bank of India, keeps changing half-yearly or yearly. Usually, nationalized banks follow variable interest rates, while private and foreign banks follow fixed interest rates. It is advisable to opt for variable interest rates because it has been seen, over the years, that the PLR has been dropping, and hence the interest rates applicable on the loan amount would drop correspondingly. The interest on the educational loan taken by a student starts immediately after the day of disbursal. The interest is payable on a quarterly reducing basis, calculated on a simple interest basis. But once the repayment of the actual principal starts, the interest is calculated on a compounded basis.
