Calculating Total Repayment Value with an Education Loan Calculator
If you’ve made the decision to take a Loan to fund your higher education, it is a large commitment and knowing what you will repay in the future is equally important as getting the Loan. The Education Loan calculator is a tool that can help you out with this.
Students, or their parents, frequently have uncertainties around the total borrowing cost. It is a lot more than just the tuition fee, as you also need to factor in the interest rate, the repayment period, and the moratorium period. So, how do you arrive at certainty before you take that Loan? Let’s break it down in this blog.
Why Total Repayment Value Matters?
Before you shortcut through the monthly EMI and think you could manage that, keep your total repayment value in mind. It is the total amount you will pay at the end of the repayment period.
It gives you an absolute view of what your commitment to the lending institution looks like. Even a small change in Student Loans and interest rates could significantly increase your ultimate total repayment value. Hence, looking just at your monthly EMIs is not enough.
How does an Education Loan Calculator Help?
An Education Loan calculator allows you to estimate your monthly EMI and, more importantly, your total repayment amount. It gives you a clearer understanding of:
- How much interest will you pay over the Loan term?
- How do different tenures affect your repayment?
- What to expect if you choose a longer or shorter duration?
Imagine you are looking at a Loan of ₹10,00,000 at an annual interest rate of 12%, and a repayment of two years. The calculator will give you a calculation of what the EMI Loan instalment amount would be, which is approximately ₹46073. Multiply that by 24 months, and the total amount you would repay is ₹11,05,752, that’s ₹1,05,752 paid in interest. Knowing these numbers is important before you finalise your decision.
How does the Calculator Work?
The calculator works through this formula:
EMI = [P × R × (1 + R)^n] / [(1 + R)^n – 1]
Where:
- P is your principal Loan amount
- R is the monthly interest rate (annual rate ÷ 12 ÷ 100)
- n is the number of months in your Loan tenure
Once your EMI gets calculated, just multiply it by the total number of months in your Loan term to get the total repayment value.
Factors to Keep in Mind
Before you rely on the calculator’s results, keep these in mind:
- Moratorium Period: Most Education Loans come with a repayment delay while you’re studying. However, interest still accumulates during this period. If not paid, it gets added to your Loan amount and increases future EMIs.
- Changing Interest Rates: When it comes to Student Loans and interest rates, a floating rate can change over time. That means your total repayment could shift as well.
- Prepayment or Extra EMIs: Planning to repay early? That’s a great step. Prepayments can bring down your principal and lower the overall interest paid. The calculator cannot contribute to this without actual manual data entry.
Tips to Reduce Your Overall Repayment Value
If your goal is to lessen the total debt balance of your Education Loan, here are some practical tips:
- Opt for a Shorter Tenure: Choosing a shorter repayment duration will usually lead to higher EMI payments, but you will pay dramatically less in interest.
- Pay During the Moratorium: Even small payments toward interest during your study period can prevent interest from piling up.
- Make Extra Payments Whenever Possible: If you are able to make a few more EMIs in a year, it will be a huge contribution in the long run.
- Refinance When You Find a Better Deal: If your credit score improves or the market rates go down, you could save even more if you refinance your Loan and get better offers.
- Claim Tax Benefits: Under section 80E, you may claim benefits on the interest paid to get help with tax deductions. However, remember that this does not reduce your Loan amount.
Final Thoughts
Using an Education Loan calculator goes beyond convenience; it provides you with information and details that put you in a position to understand and factor into your planning, budgeting and negotiating process. Therefore, before you sign the Loan agreement, take the time to use an Education Loan calculator.
