Availing education loan is easy, but problems arise when it is time to repay the interest-laden debt. This is especially true if one has availed of an education loan with a higher amount, which generally is the case when students have to study abroad. Higher loan amount invariably means higher EMIs, which might be difficult to pay every month. Failure to repay the education loan EMIs in time can hamper the credit score, and eventually the creditworthiness, of the student. To avoid such an eventuality, it is better to opt for student loan refinancing and select a lender with friendlier repayment terms and conditions.
What is student loan refinancing?
Education loan refinancing implies the process of replacing or consolidating existing debt(s) with a new one. The new loan would also have a new interest rate. The key goal of student loan refinancing is to secure better terms and conditions. In the stress of meeting college admission deadlines, it is not uncommon for students to apply for the very first education loan they can find. As a result, they may end up with a loan with interest rates and unfavourable terms. To avoid the high EMI payments of that loan, students may go for refinancing. They can acquire a new education loan at a new interest rate and with new terms and conditions where the new lender pays off all the dues of the old loan. A large number of lenders across India, including public and private banks and non-banking finance companies (NBFCs), offer refinancing options for student loans.
Need for Refinancing
As students graduate, they may face issues in repaying their student loan EMIs. There are many factors that can prompt students to consider refinancing, including:
- Lower interest rates: Securing a loan with a lower interest rate is among the primary motivations for refinancing. Student loan refinancing allows borrowers to reduce the overall cost of borrowing. As a result, they get to save money over the repayment period.
- Improved terms: When opting for refinancing, borrowers may renegotiate the terms of their loans. This can include extending the repayment period or even adjusting the EMIs to better align with their financial situation.
- Consolidation of loans: Students might have multiple education loans from varied lenders. Choosing to refinance the student loan provides them with the chance to consolidate these loans into a single, manageable loan that has unified terms and conditions.
Best Time to Refinance
The perfect time to consider refinancing a student loan would be when the student enters the workforce. Securing steady employment lowers the risk of loan default to a great extent. The lenders typically find comfort in the borrower's stability of the income. Therefore, it would be an ideal time to negotiate more favourable terms and conditions while seeking student loan refinance opportunities. The borrower will have higher odds of landing a deal with lower interest rates and improved overall loan terms.
During the transitional phase between graduation and employment, the lenders would also get the chance to gain a comprehensive understanding of the financial standing of the borrowers. Armed with the details of the income and repayment capacity of the borrowers, lenders shall be more inclined to provide reduced interest rates and improved conditions.