MBA 2016-18: Save Rs.2 lakhs on study loan; follow the guidelines

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MBAUniverse.com News Desk |
April 14, 2016
To make its study loan scheme more attractive and to retain the students with it, the Bank prepares certain tailor made study loan schemes which facilitate availability of funds to pursue the MBA
The amount of interest being charged during the MBA course period if not paid regularly, may be added back to your principal amount

Almost all the good B-schools have nationalized or private banks in their premises. These banks apart from offering banking services to the staff and students of the B-school usually have a tie-up with the institute to offer study loan to the students to pursue MBA/PGDM programme from the B-school in question.

To make its study loan scheme more attractive and to retain the students with it, the Bank prepares certain tailor made study loan schemes which facilitate availability of funds to pursue the MBA. The loan is granted without much paper work as most of the required documents from the B-school are already available with the bank.

But the problem comes when you come to know that there are other banks which are offering study loans at lower and attractive terms than the bank you have chosen, is offering.  The idea to search for more options in the scenario of competitive market may get you a better deal and you may end up saving more amount on your study loan.

Check other offers
Education loan schemes of banks have some offers the benefits from which depend upon your punctuality, understanding of the scheme and negotiating skill

Say ‘No’ to processing charges
Some of the banks charge one time processing fee for Rs.5000/- or so, the fee can be waived if you negotiate well and submit an application to the bank to waive it. Their controllers have the authority to waive it and they do it frequently.

Government of India has also issued the directive not to charge processing fee on education loan. The logic behind waiving the processing fee is that Education loan is covered under priority sector loans and banks are not supposed to recover processing charges on it. With a little effort you could get the same waived.

Opt for simple interest charging Bank
Banks offer to charge simple interest during moratorium (course) period. It means the amount of interest being charged during the MBA course period if not paid regularly, may be added back to your principal amount.  Once the course is over and you are employed, banks will start charging compound interest on the education loan account. It is a good idea to pay interest during course period to get some relief and avoid to get it added to principal amount later on.

Understand with example
Loan amount Rs.12 lacs; course period 2 years; rate of interest 10.70% PA
Simple interest amount per month: Rs. 10,700 (Yearly Rs.128400/-)
Compound interest amount per month: (Please remember Banks have the system of monthly interest application, hence Rs.10700 will be later compounded followed by other monthly applications)
It would go up to somewhere around Rs. 12000/- per month if you choose not to repay during course period (Yearly Rs.142,000/-)
If you make monthly repayment of interest only, you will save: Rs. 14000/-

Go for Floating interest rate
Floating rate of interest means there would be changes in interest rate in case of increase/decrease of their base lending rate.  This is beneficial for you also.  Banks link their rate of interest to the base lending rate which goes downwards also. Check the correct prevailing base rate and link it as specified. Whenever the base rate is reduced your interest rate will be reduced.

Keep your Parent as co-applicant
If your parent is co-applicant/co-borrower, interest may be reduced further by 0.25 to 0.50%. It will be a handsome amount in a range of 25k to 50k PA during the repayment period, assuming that you have taken a loan of Rs.12 lacs.

  1. 0.25%  of Rs.12 lacs: Rs.3000; in 10 years Rs.30,000
  2. 0.50%  of Rs.12 lacs: Rs.6000; in 10 years Rs.60,000

The small reduction in interest can fetch good saving potential if you are little careful.

Relief in interest on regular re-payment- Some of the banks give relief to the tune of 0.5% in interest amount, if you regularly make repayment. When you re-pay regularly, you not only save on compounding of interest but your principal amount also gets reduced.

0.5% of 12 lacs: Rs. 6000 per year. Total saving in 10 years on reducing balances will be somewhere around Rs.45000/-.  Initially it will be more saving, later it will continue to decrease with the reduction in balance in your loan account.

Concession to Working Professional- Working professionals getting admission in MBA at good B school can be further provided relief in interest by 0.25% by some of the banks.

This can again give you benefit of Rs. 30,000/- during the repayment period

Concession to Women MBA aspirants- In addition to above, if you are a girl student, you may be awarded further reduction in interest by 0.25 to 0.5%

While some banks give a relief for 0.25%, some offer it to the tune of 0.50% Even the minimum is considered, you save Rs.30,000/- more

While going through the various schemes of the banks and other financial institutions, try to zero in the best one in your favour.

If you need Rs.14 to 15 lakhs to study in a good B school, you  may find that almost all the banks can cater to your need.  What you have to calculate now is how you can save even more while getting your education loan sanctioned from any of the low interest charging Bank .

Bank know well that after completion of your MBA from a good B school your pay packet will be pretty high. It is eyeing your future requirements as well. It will fund your MBA according to the programme’s requirement with all the negotiation options kept open.

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