Jyske Bank A/S, the third-largest Danish bank in terms of market share, has just announced that it will be offering a loan with negative interest rate. This bank from Denmark has stunned the entire world as it is set to become the first bank in the world to do so. The bank has also set hopes for students planning to avail education loan for higher studies.
Indian banks currently charge interest rates as high as 9-13% from students for their education loans. State Bank of India Education Loan charges interest rates between 10.50%-10.80%. Some private banks charge even more. For example, ICICI Bank Education Loan charges interest rates up to 14.6%.
Though the government offers many subsidies and the banks also release schemes to benefit students, these loans still act like a burden. As the students do not have any income source during the moratorium period, the loan ends up with high accumulated interest figures. A loan with either a negative interest rate or none at all will lift a heavy burden from the student’s shoulder and help them study peacefully.
In the case of a negative interest rate, as it appears to be, the bank will help students repay their education loan. So if you take an education loan of INR 10 Lakh and the interest rate is -2%, then it means you’ll be paying back only INR 9.8 Lakh while the bank will help you with the remaining INR 20,000. Seems pretty good, right?
No bank wants to lose money and there is a well-planned logical reason behind lending money at negative interest rates. The major reasons behind banks offering such education loans are as follows.
1. Banks feel that the economy is slowing down and all the other measures have failed. In such cases, the circulation of money is vital. So in order to encourage people to take loans and let the money stay in the market for long, banks offer negative interest rates. This encourages people to delay their repayment dates.
2. Some times bank accept a little loss in order to mitigate some bigger losses. Banks feel it safer to offer negative rate education loans rather than getting defaults on education loan with large interest rates.
3. Such loans boost and uplift a weak country’s economy as the money released in the market would be spent multiple times.
Though the negative interest rate loans seem to be an easy thing, they aren’t so. There are a lot of complications associated with them.
1. In certain cases, students can end up paying extra money even when they avail education loans with a negative interest rate. This happens when we consider all the processing charges and various other charges during all the paperwork.
2. Such loans often offer a limited amount of money and have short repayment durations.
Negative interest rates are more prone to be launched in small economies rather than big economies. It might take a very long time for such schemes to be launched in Inda, but still, if they are launched, they will be of great help to students for their higher education.