Indian students in US master art of saving

Let's see how this works. Banks in the US offer students credit cards with 0% interest for a six-month period to promote the use of cards and inculcate a habit of revolving credit. Most Indian students avail of an education loan provided by banks in India to finance the majority of their tuition fees.

 

But these loans come at a relatively higher interest rate, generally at 11-12% per annum. Assuming that, on an average, a semester fee costs $4,000 for post-graduate education in America, a student needs to borrow this amount every six months from his bank in India. Paying interest on this $4,000 for six months at the rate of 12% works out to approximately Rs 11,500 or $240. That's where plastic money comes in handy. By availing of a six-month 0% rate on his credit card, a student is effectively able to save on the above interest amount.

 

That's how many Indian students use their card to pay tuition fees at the beginning of the semester. And once the interest-free credit period on their card is up, they ask their banks in India to lend them the required amount. By leveraging credit facilities in the US and India, many Indian students are able to reduce the effective rate on their education loan by almost 50%.

 

However, this is not as simple as it looks. Credit card companies usually offer a credit limit of $1,500-2,000 on each card. So, to pay his fees, first, a student needs to have multiple credit cards, which is not very tough. Secondly, each month the student is required to pay minimum balance of $20 to $35 to revolve his credit facility.

 

What helps, of course, is that the interest charged on credit card balance in the US is much lower than in India. The annual interest rate in the US on credit card balances is between 12% and 19%. In India, it varies between 25% and 35%.

Source: Economic Times