Should you be in a rush to prepay an education loan?

Arpit, 27, recently returned to work after taking a break to pursue his master's degree. With support from his parents for a significant portion of his tuition, he still needed to secure an education loan of Rs 10 lakh. Currently, his monthly loan payments stand at Rs 17,500, alongside personal expenses of Rs 25,000. This leaves him with a surplus of approximately Rs 37,500 from his monthly income of Rs 80,000. Like many young adults, Arpit dreams of owning a car and, eventually, a house. He seeks our advice on achieving these goals and considering paying off his education loan early. #1 Education loan: No immediate rush to repay Arpit's education loan carries a 10.75 per cent annual interest rate. That's not a bad deal. Further, education loans usually have a floating rate of interest, which tends to go up or down whenever there is a change in the repo rate. Repo rate is the interest at which the Reserve Bank of India (RBI) lends money to banks. Many experts believe that interest rates have peaked, and the RBI may soon start reducing them anytime this year. This means that the interest rate on Arpit's education loan may also decrease in the near future. Moreover, the interest paid on education loan

This article was originally published on March 15, 2024.