What is EMI in Education Loan and how to calculate it?

When an individual borrows a loan, whether it's a personal loan, a house loan, or a car loan, they take the responsibility to pay back the loan with interest to the lender in due time. 

Likewise, when students borrow an abroad education loan, they too have to pay back the loan in the form of EMIs to the bank during their education loan repayment period.

However, most people have no idea how to calculate EMIs and are unaware of the amount their lenders are charging them. Understanding the basic EMI calculations can help you ensure the amount you have to pay to the lenders. There are many EMI calculators by different lenders available that could help you ascertain your monthly payments and balance your budget accordingly. 

However, most online calculators do not account for the moratorium period when calculating the EMI for an education loan. Why? This is mostly due to the fact that education loans are the only form of loan where the borrower enjoys a moratorium period, which alters all metrics, whereas the other calculators are basically loan calculators for house loans, car loans, and other loans that do not have a moratorium period.

Hence, WeMakeScholars have come up with an exceptional education loan EMI Calculator so that the candidate can accurately calculate EMI for education loans and can ensure the amount they have to pay to the lenders. But, before we go into the calculations, it's important to understand the fundamentals.

EMI (Equated monthly installment) is a payment made by a borrower to a lender where they pay both interest and principal amount every month. 

This will allow the person to pay the full amount of the loan over a specified number of years. EMI constitutes the principal amount along with the accrued interest. EMIs are considered as the more convenient way to pay back a lump sum amount of the money to the lenders. This is one of the most desirable options by society, especially for the people who cannot afford to pay a large amount all at once. 

With the floating EMI interest rates and prepayments, the amount you pay in EMI depends on the factors pertaining to your loan.

The EMI loan is dependent on 3 factors which are:

• Loan Amount- This is the amount that has been borrowed by an individual through a lender. So higher the loan amount, the higher will be the EMI you pay each month.
• Interest rate- This is the amount that a lender charges to the borrower. The lender charges interest as a proportion of the amount lent to the borrower. So before lending money, compare the best interest rates offered by the lenders and then proceed to the final one. 
• Tenure of the loan- This is a particular time frame between a borrower and a lender to repay the principal and the interest in full.

Factors to be considered while calculating EMI accurately on an education loan:

1. Payment is semester-wise or year-wise:

Whenever you are considering taking a loan, you should understand that education loans work in disparate ways. Like, when you are considering a car loan, personal loan, or any other loan the money is disbursed completely whereas when taking an education loan, the money is disbursed semester-wise or year-wise.

As the money is disbursed semester-wise or year-wise, the figure of the interest rate also changes accordingly. 

Let’s assume, Loan sanctioned- 40 Lacs; Course- 2yrs

In the first semester, the total money required for expenses is 12 Lacs

In the second semester, the total money required for expenses is 10 Lacs

In the third semester, the total money required for expenses is 15 Lacs 

So, the interest during the first semester would be only on the money disbursed which is 12 Lacs, not on the total amount of loan sanctioned i.e. 40 lakhs, and similarly for the rest of the tenure. 

2. Simple interest or compound interest:

Simple interest means interest is calculated on the principal amount i.e. the amount of a loan whereas in compound interest the interest is calculated on the principal amount and the interest that accumulated on it in every period. Calculations for car loans, personal loans, and others are on a compound basis whereas, for an education loan, banks charge you simple interest during the moratorium period.

3. Grace period:

A grace period is a set length of time in which payment is made without penalty. This is commonly included in mortgage loans and insurance contracts. As per the norms of IBA (Indian Banking Association), all education loans must have a moratorium period. During this period, the banks cannot demand repayment of loans while the student is studying. Most lenders allow 6 to 12 months after the course period to find a job and then start repayment. 

4. Moratorium period:

The moratorium period in education loans is the period until which the EMI doesn’t start. It is usually a course duration plus 6 months/1 per year. As Government banks are more user-friendly, banks can confer zero payment moratorium which means students are not required to pay anything during this period. During this period, students can focus on their studies and are not responsible to pay even the interest quota during the course period plus the grace period. Hence, make sure to take this into consideration while calculating EMI for education loans.

Make sure to consider these factors to calculate education loan EMI. Also, when you choose the option of “No payments” during the Moratorium period the option is only offered by the Public sector banks like SBI, Bank of Baroda, Punjab National Bank, etc. Government Banks charge you simple interest during the moratorium period, hence that should be considered for the calculations. 

The mathematical formula to calculate EMI is

P × r × (1 + r)n/((1 + r)n - 1)

Where

EMI- Equated monthly installment

P- Principle of the amount borrowed

R- Rate of Interest

N- Tenure of repayment of the loan

Using a traditional mathematical formula to calculate your EMIs for education loans can be time-consuming and nerve-racking. So, the WeMakeScholars team has designed an EMI Loan calculator for education loans which will assist you through various parameters and will inform you of the accurate monthly EMI to be paid to the lender.

Calculate your education loan EMIs through- Education Loan EMI Calculator by WeMakeScholars.

If you are still confused about how to exactly calculate your EMIs for an education loan, watch the 3rd Episode of Loanflix Season 2 on “How to accurately calculate EMIs for education loan” to gain a much deeper insight on the subject. 

1. Firstly, fill in the necessary details with the required data which included:
   a). How long is your course (make sure to fill it in months and not years)
   b). The total loan amount is taken
   c). rate of interest for the loan in percentage
   d). Select YES, if you will pay during the moratorium period and select NO if you are not paying anything during the moratorium period
   e). Mention the grace period i.e. after how many months you will start paying EMI
   f). and lastly, your tenure of repayment of the loan i.e. in how many years you will pay the loan
2. Click on Calculate EMI.
3. Get the results
4. In case of any doubt, request a callback, and our team will contact you soon.

Instead of going for a traditional method of calculating, proceeding through the WeMakeScholars EMI calculator will give you the exact number of the EMI that has to be paid. 

Anytime Access to our EMI calculator- Our calculator can be accessed anytime and anywhere. You can use it at your convenience as it is simple and easygoing.

Accuracy of results- Using mathematical formulas and calculating for hours can be time-consuming and have a risk of making mistakes. Instead, using an EMI Loan calculator can be time-saving and you can avoid the chances of errors.

User-friendly- You can avoid tedious work and complex calculations with the use of a calculator as it is user-friendly and convenient. 

Assists you to plan your monthly EMI- You can prioritize your financial monthly budget on our EMI Loan calculator and can set the loan parameters as per your requirements. 
Use our calculator to calculate and compare the actual repayment considering your moratorium period and partial disbursements. Feel free to reach out at WeMakeScholars and our financial officers will reach you soon. As we are a Government funded organization, we do not charge anything. It is a free-of-cost service.