Personal Loan Balance Transfer: Factors To Consider

By | 03/11/2016


Imagine you are paying EMIs for an existing personal loan and one day you get a call from another bank offering you a chance to transfer your loan. They offer you lower interest rate and on the top-up amount if you need. What do you do? Accept the deal right away? Not really. First, evaluate the proposition, assess how it suits your needs and only then make a decision.

There are various factors that need to be looked into before availing a personal loan, the same applies when you decide to transfer it. Although your first loan surely would have had other crucial factors to consider along with the interest rate, there are high chances that you might miss out on considering the same factors again when transferring your existing personal loan from one lender to another. And  if that is the case, then you are shooting in the dark.

Before we share the factors you should keep in mind when availing a personal loan balance transfer, let’s look at what can prompt you take such a step:

  • Better interest rates: It is possible that at the time of availing personal loan, your lender may have offered you a very high interest rate depending on your salary and profile at the time. But if you have moved up professionally and improved your financial track record, chances are a lender might be willing to offer you lower interest rates on personal loan.
  • Service issues: It could be that the services offered by your current lender may not be good, such as levying of extra charges without prior information.
  • Need for additional money: You may be in need of more money and so, instead of servicing a new loan, you can opt for a top-up loan. So, when you transfer your personal loan to a new lender, you can also ask for an increase in loan amount.
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Now, what should you look at when transferring your personal loan:

  1. Evaluate the total deal

It is essential to calculate how much you will end up paying in total to the new bank. While they may be offering you a lower EMI, check whether that is coming at the cost of a longer duration. If you opt for longer loan duration, keep in mind your overall interest outflow will also rise. Any online balance transfer calculator can help you assess and compare the old option to the new. It is always better to pay higher EMI for a shorter loan tenure than paying a bigger amount in total to clear off your personal loan.

  1. Account for processing fee and other charges

Whenever you are engaged in the balance transfer of a personal loan from one lender to another, the transaction is subject to a pre-closure penalty. Usually, this fee ranges between 1% and 3% of the principal amount being transferred and is payable to the new lender. Additionally, you may also be charged a pre-payment or foreclosure charge (1% to 3% on existing outstanding loan amount) by the current lender as the original loan is being paid off before the completion of the loan tenure. So, in essence you will have to pay the fees twice. Keep this in mind before jumping the ship as this is additional expense.

  1. Read details and fine print carefully

Don’t forget –the personal loan transfer, you will have to fill up and put your signature on a long list of documents. It is of paramount importance that you are aware of the key terms and conditions associated with the loan. Loan transfers with initial low interest rates may have unfavorable terms and conditions attached to it and if you are unaware of these, be ready for some surprises, not necessarily good ones. So read and understand all key documents of your personal loan balance transfer agreement with caution before opting for the transfer.

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Balance transfer of personal loan is a great option for individuals who have availed personal loan at a high interest rate. But before transferring your loan, assess the long term benefits of the balance transfer and your repayment capacity.

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