Comprehensive Guide to Understanding Interest Rates on the KfW Student Loan
At deineStudienfinanzierung, we understand that navigating the intricacies of student loans can be overwhelming. That's why we have created this comprehensive guide to help you understand everything you need to know about interest rates on the KfW student loan. Our aim is to provide you with clear and concise information so that you can make informed decisions about your student financing. Let's dive in!
How are the Interest Rates Determined, and When are They Charged?
For the KfW student loan, the interest rate is variable and is set twice a year, on April 1st and October 1st. These rates are based on the European reference interest rate known as the 6-month EURIBOR (Euro InterBank Offered Rate). The EURIBOR represents the average interest rate at which European banks lend money to each other on a short-term basis. As a result, it serves as a reference value for variable interest rates, including those of the KfW student loan.
To stay updated on the current interest rate for the KfW student loan, you can visit the KfW website and navigate to the "Konditionen" (Conditions) section, specifically the "Zinssatz" (Interest Rate) subsection.
It's important to note that the interest rates for the student loan apply throughout all phases of the loan, which include:
1. Disbursement Phase
During this phase, the interest is deducted directly from the disbursement amount. Consequently, it's normal to receive an amount slightly different from the one initially selected during the application process after a few months. This adjustment is due to the interest deduction.
2. Grace Period
The grace period refers to the period between the last disbursement and the start of repayment. You are not repaying the loan itself yet, but the interest is getting calculated and charged during this time.
3. Repayment Phase
The interest is included directly in the monthly installment that you repay during the repayment phase.
Example calculation of a student loan and the accruing interest
Let's consider an example calculation to better understand the impact of interest on the KfW student loan. For this scenario, we'll assume an interest rate of 5% and a monthly disbursement amount of 500 euros over a 12-month period.
Since the interest is calculated monthly, we divide the annual interest rate by 12 to determine the monthly interest rate, which is approximately 0.42% (5% divided by 12).
In the first month, you will receive the full disbursement amount of 500 euros. In the second month, the interest is charged for the first time, amounting to approximately 2.08 euros (500 euros * 0.42%). As a result, the total loan debt increases to 1,000 euros since you receive another 500 euros.
This calculation continues throughout the disbursement phase, providing an approximate idea of the total interest accrued during this period. In our example, the total interest accrued would be 137.50 euros for a 12-month disbursement phase with a 5% interest rate, as displayed in the KfW repayment calculator.
To provide a comprehensive overview, the repayment calculator also breaks down the interest during the grace period and the repayment phase. In our example, the total amount to be repaid for the entire loan would be 8,224.21 euros.
It's important to note that the interest during the repayment phase may seem substantial, amounting to approximately 1,600 euros in our example. However, it's crucial to consider the repayment period's duration. By specifying a shorter repayment period, such as 5 years instead of 10 years, the interest would be reduced to approximately 800 euros, resulting in a total burden of around 7,400 euros. Thus, the repayment period significantly impacts the total interest amount.
Simulating Your Own Loan with the KfW Repayment Calculator
If you want to simulate your own loan and understand the repayment details, the KfW repayment calculator is a valuable tool. Here's how you can use it effectively:
Initially, specify the desired disbursement amount ("Darlehensbetrag pro Monat") and the duration of the loan ("Auszahlungsphase"). For example, if you want to receive the loan for 2 years, you would enter 24 months.
Click on "Summe Berechnen" (Calculate Amount) to proceed.
In the "Laufzeit- und Tilgungsdaten" (Term and Repayment Data) section, you will find the interest rate and grace period. The grace period is set to 18 months by default, but you can adjust it to a range of 6–23 months. If the default time frame suits your needs, you can leave it as is.
By clicking on "Zinssatz Ermitteln" (Determine Interest Rate), you ensure that the current interest rate for the student loan is automatically entered. Additionally, you can choose whether the interest payments should be deducted from the monthly amount (the typical loan process) or deferred and paid later.
Finally, you reach the "Annuität und Tilgungsplan" (Installment and Repayment Plan) section, where you have two options:
You can enter the desired monthly repayment amount.
Alternatively, you can specify the loan/repayment duration.
During the grace period, KfW provides a repayment plan designed for a 10-year repayment period. To obtain a comprehensive overview of your student loan, enter 120 in the "Tilgungsdauer" (Repayment Duration) field, as 120 months equals exactly 10 years.
By clicking on "Tilgungsvorgabe Berechnen" (Calculate Repayment Target), the repayment target will be automatically filled in. Now, with all the necessary information, you can generate your repayment plan by clicking on "Tilgungsplan Ermitteln" (Calculate Repayment Plan).
To save or print your repayment plan, scroll down to the bottom of the page and click on "Drucken" (Print).