Benefits of education loan refinancing: Save interest and reduce EMI

New Delhi: If you have an education loan and are paying high EMIs or interest, considering education loan refinancing can be a smart financial decision. Education loan refinancing means replacing your existing study loan with a new one that offers better terms or lower rates. It can help you save on interest and lower your EMI.

What is Education Loan Refinancing

Let’s break it down for you. You took an education loan from say X lender on ABC terms. Refinancing your existing education loan shifts this liability to a new lender or to another plan with better perks offered by the same lender.

In India, banks often offer a “take-over” of education loans, which lets you switch your existing loan to one with lower cost.

For borrowers who have shifted abroad, they can swap loans from home country lenders to new ones in their new location. This is subject to lender policies, eligibility, currency conversion, and regulatory requirements.

Why Refinancing Makes Financial Sense

Key benefits of refinancing your education loan if you are eligible:

1. Lower interest rate
   You may secure a lower rate than your original loan. For example, refinancing your current study loan with an interest rate of 12% p.a. to a new one with a 10% interest rate on a ₹20-Lakh loan may save you around ₹8.29 Lakhs over 9 years. The exact value depends on the tenure you have paid for, remaining tenure, and the borrowed amount. A lower rate is equal to less interest cost, which means more savings.
2. Reduced EMI or shorter tenure
   You may refinance your education loan to also reduce your monthly EMI by extending the repayment tenure, or shorten the term without increasing the EMI. Either way, refinancing can help you get more cash in hand every month.
3. Consolidation and simpler management
   If you have multiple education loans (domestic + abroad, or multiple lenders), refinancing can help you combine them into a single loan. This is known as consolidation, where your loans get simplified and you pay one EMI and have only one repayment schedule to remember.
4. Release of cosigner or collateral
   If your original study loan required a guarantor or collateral (common in abroad-study loans), refinancing might free the cosigner or release collateral.
5. Improved financial profile
   Once you start earning and have completed your education, that alone improves your credit profile. A better credit profile and score often give you improved loan terms. Thus, refinancing your loan after you start earning can actually make you shift to better terms.
6. Tailored repayment terms
   Refinancing lets you choose repayment schedules that align with your cash flow. For example, you may want to change your EMI, pause the payment for some time, or convert floating interest rates to fixed rates.

When Should You Consider It

Key Things to Check Before You Refinance

• Foreclosure or exit charges: Some lenders may charge a penalty to pre-pay or transfer your loan.
• New interest rate + fees must truly benefit you: Lower EMI may hide a longer tenure, which could raise total interest cost. Calculate the total interest cost before you commit.
• Loss of existing benefits: If your current loan has a subsidised rate or government protection, refinancing the loan might make you lose those.
• Eligibility: Good credit score, income proof or job stability may be required to qualify for education loan refinancing.
• Lender reputation: Always check the lender’s track record, hidden conditions and policies before you shift.

Putting It Into Action

1. Review your current study loan details: interest rate, tenure, EMI, and any benefits.
2. Compare offers: approach other banks/NBFCs offering education loan refinancing. A digital marketplace like Bajaj Markets can make this process convenient. You can compare lenders and their terms on the website and make decisions based on data and facts and not salesy pitches.
3. Compute savings: check interest rate drop, tenure change, and fees. Use an EMI calculator to double-check your numbers.
4. Check documents: many lenders require KYC, income proof, and previous loan statements.
5. Make the switch: once approved, the new lender clears the old loan, and you repay under new terms.

Conclusion

Refinancing your education loan can lower your interest cost, reduce your monthly EMI, simplify your repayments and free up resources for your other financial goals. But comparing your current terms, rates and benefits is important to ensure that you make a beneficial financial decision. Refinancing your education loan lets your loan work for you, not against you.