A personal loan is an unsecured loan taken out by individuals to suit their own requirements from a bank or non-banking financial corporation (NBFC). It is given based on important factors including income, credit and employment history, repayment capacity, and so on. A personal loan is not secured by any asset, and the borrower is not required to put up any collateral, such as gold or real estate, in order to obtain one. As a result, the lender will not be able to sell anything you possess if you default. Because of the higher perceived risk in giving personal loans, interest rates are higher than those on home, vehicle loans, or gold loans.
Your financial flow will be curtailed if an emergency occurs. Because you are in desperate need of money, you take out a high-interest Personal Loan from a financial institution. However, you’re now seeking solutions to cut your interest payments, lessen your EMIs, and relax. Why not go with a different lender and acquire a product that actually fits your requirements?
Personal Loan balance transfer or refinance is the answer.
What is a personal loan balance transfer?
A Personal Loan balance transfer is the process of transferring a customer’s whole outstanding Personal Loan balance from one bank to another. It frequently occurs when a new bank offers a lower interest rate on the outstanding loan balance. As a result, the major goal of transferring a Personal Loan in India is to reduce overall debt.
To save the most money on total interest, one must carefully evaluate the Personal Loan balance transfer offers and select the best one. Borrowers are not required to furnish any collateral during the loan transfer process. Foreclosure fees, processing fees, and stamp duty on the loan agreement are a few of the small fees associated with the Personal Loan balance transfer (if applicable).
Benefits of balance transfer
Low interest rate
One of the most significant advantages of the personal loan balance transfer service is that it decreases your interest burden by lowering your interest rate and hence your EMIs. You can calculate EMI using a personal loan EMI calculator. On the loan transfer, the new lender would charge a reduced interest rate. However, before using a balance transfer facility, it is usually a good idea to assess the need, evaluate the offer, and compare rates and features.
Low monthly payments
The monthly payments on your personal loan are reduced automatically when the interest rate is reduced. You can also lower your monthly payments by extending or renegotiating your loan payback term. With a longer term, your EMIs will be reduced even further, easing your financial burden.
Top-up loans
In addition to personal loan balance transfers, most banks offer a top-up loan. These are available at a very low interest rate and at a competitive price.
Improve credit score
If you’ve always paid your EMIs on time but aren’t sure if you’ll be able to make full payments in the coming months owing to unforeseen financial difficulties, a balance transfer is a good option. This action will not only help you keep your credit score, but it will also allow you to improve it.
Extended loan tenure
When transferring a personal loan from one lender to another, you can negotiate the repayment period of an existing loan, which can be extended or lowered to match your needs. If you choose a lengthier term, you may have lower monthly EMIs but a higher total interest payment. In contrast, short-term loans have a smaller total interest load but higher individual payments.
Enhanced features
Depending on your repayment history and current income, you can negotiate with lenders for better loan features such as waived last EMIs, no processing fees, lower interest rates, and so on. The balance transfer option on a personal loan can help you save money on interest while also giving you access to superior loan features.
How does personal loan balance transfer work?
The new lender pays off your current loan when you transfer your personal loan balance. You may be required to pay those fees if your existing loan has a prepayment clause. You will also be responsible for your new loan’s processing fees. However, when you consider the money you’ll save on a lower interest rate, these fees will be far outweighed.
Factors to Consider Before Making the Balance Transfer
Check the following items before asking a bank to transfer your existing high-cost debt to see whether there are any benefits to the move.
Calculate the gains
The EMI is set up in such a way that the interest rate is fixed for the first part of the payment and only a small fraction of the payment is deducted from the principal. As a result, after your lock-in term is through, you will have paid far more interest than the principal. In addition, the present lender will charge you prepayment fees, and the new lender will charge processing fees. Some lenders charge up to 6% of the outstanding loan amount in foreclosure fees. This can add up quickly if the loan amount is large. Calculate how much money you’ll save if you move your balance.
Terms and conditions
Read the terms and conditions in their entirety before accepting the new loan. The new lender may try to sell you lifelong free credit cards or insurance schemes that you may not need, or push you to start a savings account, among other things. The benefits may not always be applicable, and you may find yourself in even more debt. Before you sign up for a deal, be aware of such things.
Tenure
A balance transfer would be useless if you are reaching the conclusion of your current loan’s term. Because you will have already paid a significant amount in interest. A balance transfer is only useful if you do it soon after the lock-in period, at the start of your term.
We recognize that a higher-interest loan will have a significant impact on your monthly spending. A swap could be able to help you solve your current issue. We do, however, strongly advise that you calculate the rewards you will receive.