Should you opt for personal loan balance transfer?
Sometimes we need a loan in a hurry and we take a loan without any knowledge. But when we find out that another bank is offering a loan at a lower rate of interest, we feel cheated, in which case we can opt for personal loan balance transfer (transfer of personal loan balance) Huh. So through this article we are going to give you information about it.
What is personal loan balance transfer?
Personal loan balance transfer is a facility through which you can transfer the outstanding principal of an existing loan from one lender to another. This process allows borrowers to obtain a new loan at a better interest rate. Balance transfer is an attractive option for people taking loans. If you have taken a loan at a higher rate of interest, this process allows to reduce the overall burden of interest. Earlier this facility was available only for credit card loans, but now this facility is offered on all types of bank loans. Through the balance transfer facility, you can reduce your overall debt and get additional benefits in your existing loan.
Why should you transfer personal loan balance?
You can choose to transfer the outstanding amount to a new loan based on the following reasons or benefits –
For better interest rate – The main reason for choosing a personal loan balance transfer is to reduce the interest rate burden by reducing the EMI. This facility is usually chosen by those who have taken a loan from a bank at a higher interest rate and another lender offers a lower interest rate. This helps the borrower to reduce the cost of interest and is able to save on the extra money being paid as interest. However, before applying for a personal loan balance transfer, you should compare the overall cost of the new loan and other features.
To prolong the loan period – Sometimes people opt for personal loan balance transfer to extend their current loan term. You may opt for balance transfer if you are finding it difficult to pay monthly EMI due to increasing family obligations, unexpected increase in your expenses or for any other reason. You can talk to the new lender about the term of the loan and get it extended as per your requirement. Monthly EMI burden will be reduced with the extension of loan period, but this will increase overall interest payments. During this process you can also negotiate to reduce your loan term.
For better terms on loan –
Loans may be offered on better terms by other lenders based on repayment records or increased income. Thus if you are offered facilities like discount on final EMI, zero processing fee, better terms on prepayment of loan, lower interest rate etc., then transferring personal loan balance is appropriate. Thus it not only helps in reducing your interest burden, but also offers other benefits along with better features.
For top-up loan facility – Sometimes borrowers need more credit for their financial emergencies. In such circumstances, if your existing lender does not offer top-up loan, then you can opt for balance transfer facility. If lenders transfer their outstanding balance of personal loans, many lenders or banks may offer additional loans at relatively low prices.
For Good Services – Personal loan balance transfer may be the best option for those who are not satisfied with the services of their current lender. Depending on the balance transfer facility, you can choose a lender known for providing superior services to customers.
How personal loan balance transfer affects repayment?
If you have taken a personal loan and are considering a balance transfer facility, then you can take advantage of a lower interest rate and thus reduce your debt burden. Let us understand this with the help of an example –
Suppose Deepak has taken a personal loan of Rs 3 lakh for 3 years at an annual interest rate of 18%, then his monthly EMI will be Rs 10,845 and his total interest payment will be Rs 90,446. Now after paying EMI for a year, he finds out that the other lender is offering the loan at a lower interest rate, so he feels cheated. Now he opts for a Basel transfer and the new lender offers him a loan at the rate of 11.29%, significantly reducing his interest burden. After transferring the loan, his new EMI becomes Rs 10,115 and he saves Rs 16,560 on the remaining repayments.
If you are also planning to transfer your existing loan, first calculate the balance that is saved through this process by using a balance transfer calculator. That is, know how much money you will be able to save. If you find that you can save a considerable amount even after adding the overall cost, you can choose it. Thus the purpose of balance transfer is to reduce the burden of interest.