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Date : Dec 15, 2007

Question

I had taken an education loan of Rs. 3.9 lakh for 5 years from SBI in April 2006.In the agreement, the rate of interest mentioned was 11% (could be floating) & EMI was Rs. 8, 480( for studies in India). I opted for payment of interest during moratorium period for which bank agreed to give 1% discount on the interest after the fulfillment of all conditions. But since then, the interest rates have been rising and so my EMI. Till now, I have only drawn Rs. 2.9 lakh and won’t draw further. So I wanted to ask some queries: 1. Can I take a lesser loan than sanctioned? Will my EMI be on sanctioned amount or the actual amount that I have taken? If that is the case then will my EMI duration be less than 5 yrs? 2. Will my EMI be recalculated as the interest rates are rising and also as I will get 1% discount for interest payment? At what rate will my EMI will be decided? 3. I will start doing job from May 2008.So when will be the best time for me to communicate with bank in order get best pos

Answer

The interest rate is always payable on the basis of the actual loan amount utilized. Even if the EMI is kept the same (on the basis of the loan sanctioned), then the period for the EMI will be paid, will come down substantially. Yu will need to study the loan agreement to find out whether you will be eligible for the 1% discount on the interest rate (even if you don't withdraw the entire loan amount sanctioned). You may also want to check whether need to pay any charges fro not having drawn the loan amount sanctioned. Once you start doing a job, you may be eligible for a deduction on the interest paid for the loan. Hence, it makes sense for you to pay the interest for that year.