How to calculate your education loan EMI in India


Education loan EMIs are calculated on the basis of a simple interest formula. Learn how to calculate your education loan EMI with the correct formula. Find out how much your education will cost you, and avoid surprises in the bank sanction letter.

When you apply for an education loan, in India, you should see what each bank has to offer before you make a choice of lender. While interest rates will play a major role in your decision, the Equated Monthly Installment (EMI) you have to pay back will also matter. There are many different schemes available with different banks.



Students are often confused by EMI loan calculations. This often leads to unpleasant surprises, when your own calculations turn out to be quite different from what arrives printed on the loan sanction letter. This tutorial will take you through EMI calculations for education loans in India.

Overview of Education Loan EMI


One thing you should know before you calculate EMI is that it is not dependent only on the principal and interest rates. You will have to factor in the terms that you have signed up for with the bank.

During the time that you are studying, the loan accrues simple interest. After you graduate, depending on the terms of your borrowing, the bank may apply a compound interest on your borrowings. But, this varies from bank to bank. So, do check.

In general, borrowers are expected to pay back the interest during the time they are studying. Afterwards, within six months of graduation or from the time you get a job (whichever comes earlier) you can begin to pay back the principal. Some banks may not give you the six-month moratorium or 'holiday period' after graduation during which you are not bound to repay your loan. Ask your bank about their terms to have a clear picture of your dues during repayment.

The repayment period is also typically between 5 and 7 years, for small loans. But you can also extend the repayment period by speaking with your bank. Note that the cheapest loans will be those that you start paying off right from the outset.

Calculating your EMI


There are many EMI calculators out there for education loan. Bankbazaar offers an accurate one, and so does Axis Bank.

Note that the interest rate is calculated based on the MCLR (Marginal Cost of Funds based Lending Rate) plus an additional spread of around 1.35-3 percent (as of 2017).

To calculate the EMI manually, you will need the following formula:

E=P.r.(1+r)^n/(((1+r)^n-1) )

here,

  • E = EMI
  • P = Principal Loan
  • r = Monthly interest rate
  • n = Tenure of the loan

You can also quickly calculate your EMI on your spreadsheet. The function for EMI or loan repayment is PMT. The formula:

= PMT (rate, nper, pv)

where,

  • rate = rate of interest (monthly)
  • nper = number of periods
  • pv = value of the loan

The result will come in red or in the negative, since it is a cash outflow for you.

Also, you may be eligible for education loan interest subsidies offered by the MHRD (Ministry of Human Resource Development) under the Central Scheme that provide Interest Subsidy on Education Loan (CSIS). In this case, the EMI that you pay can go down, considerably.

When you use an online EMI calculator, you will find many of them may also give you the option to include the processing fee into the calculation. Do not forget to factor this into your calculations. Processing fees are usually around 0.15 percent of the principal loan amount.

Additionally, do not forget to keep an eye out for other bank charges, like pre-payments, late EMI payment charges etc.



In the following links, I have presented information on education loans offered by various banks -


Article by Juana
Juana is a freelance writer, with years of experience, creating content for varied online portals. She holds a degree in English Literature and has worked as a teacher and as a soft skill trainer. An avid reader, she writes on a variety of topics ranging from health, travel, education and personality development.

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Comments

Author: Venkiteswaran06 May 2017 Member Level: Diamond   Points : 5

The article would have been more effective and easy for any one if one or two examples are given as an illustration, rather than using technical jargons usually seen in financial articles.

For any loan repayment, the borrower should consider the total salary and the essential amount to be spent on basic necessities. Only the residual can be used for loan repayments. One should not over promise for monthly repayment, because later on, the person may have more expenses and less amount to spare for loan repayment. In such situations default occurs.

So while discussing with the lender bank about fixing loan repayment instalments it is always to have a thorough discussion on all aspects and fix an optimum realistic amount of monthly instalment.

In case the borrower gets more earnings, later on, the repayment schedule can be amended discussing with the bank. A foreclosure can also be thought of then.

Author: Juana30 May 2017 Member Level: Platinum   Points : 7

Links have been provided along with the technical jargon for the uninitiated to calculate EMIs online.

I recently took a loan for my daughter’s education and my experience is this –

1. The borrower is not in a position to dictate terms on the value of the EMIs. The lending banks have set policies which they follow. I would think to have the term adjusted to meet individual needs would require more than just a ‘loan application’. I wonder which banks are so customer friendly as to accommodate clients’ wishes while giving a loan.
2. Every loan has to be repaid by the borrower, which in this case is the student. How does a student who is just on the verge of pursuing higher-education work out what their residual income would be 2, 3, 4 years hence? How does he get the EMIs fixed on the basis of something that is in the future that he does not know?
3. An application for education loan is made at the fag end of the admission procedure – when the student has an offer in hand. There is just enough time to process the loan and get it sanctioned in time. Having been through the whole process I do not think anyone would put in an effort to begin negotiating the loan terms. The bank has the upper hand and knows it. Parents do not want to play around with their children’s future and take risks.
4. Foreclosure and other clauses are agreed upon at the time of initiating the agreement. Getting amendments made at a later stage though possible, can be cumbersome, because the chance of the Bank Manager present at the time of the loan sanction, getting transferred are always high. Getting acquainted with the new officer and approaching them for help would entail much effort and time.



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