- Paying a personal loan but want to switch it to another lender at a lower interest rate?
- Read here how you should go about it!
A personal loan balance transfer benefits borrowers immensely by reducing their debt burden over time. It’s a process by which you can switch your existing loan to another lender at a lower rate of interest. You just need to keep an eye on the lender offering the best deal and cling on to it at the earliest to maximize. Because a balance transfer aids more when you do in the early years as opposed to when the loan is just a year or some months away from completing its lifetime. The interest portion of the EMI remains much higher earlier and comes down as the loan is about to finish its term.
But where should you do a personal loan balance transfer? Since a personal loan is for a maximum of 5 years, multiple balance transfers may not happen that you see in long term loans such as home loans. So, you should select the right lender for a personal loan balance transfer to enhance your gains. We can help you select the BEST by giving you an approach to the selection process. Read here the approach and implement your actions accordingly.
How Could You Figure Out the Best Lender for a Personal Loan Balance Transfer?
Firstly, keep a list of lenders offering a personal loan balance transfer, see the rate of interest they offer on switching, the balance transfer fee they ask for, and the flexibility in their overall deal. A lot of us just think about the interest rate on a balance transfer and ignore other important aspects. The eventual savings then come short of what you could think of. Maybe you would realize this after you finish paying the loan. So, if you are mulling a personal loan balance transfer, you will like to know such aspects in detail. Let’s check the same below.
Check the Interest Rate Deal Carefully to Maximize Personal Loan Balance Transfer Gains
Yes, a personal loan balance transfer comes at a lower rate of interest. But only LOWER will not help your cause! See which lender offers you the lowest interest rate on a balance transfer? You should look for an interest rate lower than the existing one by at least 4-6%. If the gap remains more than this, it will boost your savings further. An example below will help you understand the point better.
Example – Akash and Meenal have been paying a personal loan of INR 8.50 lakh for the last two years. Interestingly, they share the same personal loan interest rate of 16% per annum. The loan is still 3 years away from completing its lifetime. And both of them have got a personal loan balance transfer deal but at different interest rates. While Akash has got a 14% deal, Meenal receives an interest rate of 11%. Now, how will this play out for both of them should they sign their respective deals? Let’s check out!
|Personal Loan Details||Balance Transfer Estimates for Akash (In INR)||Balance Transfer Estimates for Meenal (In INR)|
|EMI Payable at 16%||20,670||20,670|
|Interest Payable at 16% Over 5 Years||3,90,221||3,90,221|
|Interest Paid Till 2 Years at 16%||2,34,032||2,34,032|
|Outstanding Loan Balance at the End of 2 Years||5,87,943||5,87,943|
|EMI Payable at 14% After Balance Transfer||20,094||-|
|Interest Payable at 14% After Balance Transfer||1,35,459||-|
|EMI Payable at 11% After Balance Transfer||-||19,248|
|Interest Payable at 11% After Balance Transfer for 3 Years||-||1,05,003|
|Interest Paid + Interest Payable After Balance Transfer||3,69,491||3,39,035|
|Savings||20,730 (3,90,221-3,69,491)||51,186 (3,90,221-3,39,035)|
As you could see, Meenal’s savings are more than double that of Akash as her interest rate on a balance transfer is substantially lower. The saving you see is exclusive of the charges associated with a balance transfer. You can read about these below.
Check Which Lenders Charge You the Least on a Personal Loan Balance Transfer
Apart from the interest rate, you also need to keep an eye on the charges associated with a personal loan balance transfer. As the balance transfer will come by way of closing your loan account with the existing lender, it will charge some fee for the same. Ensure the fee is minimal. A very few lenders don’t charge for personal loan prepayment. If that remains your case, you are poised for greater savings!
But even the new lender will charge you some. It will levy a balance transfer fee, which can either be a certain percentage of the transferred balance or a flat amount. So while calculating the savings, factor in these charges too. Choose the lender that charges very little or nothing for processing a balance transfer request. Yes, some lenders don’t charge based on healthy income and a high credit score. All that only gives you more room for comparison.
Look for Flexibility in Balance Transfer Offers Too
The example above showed how a personal loan balance decreases the overall interest payment. If you see the example carefully, you will notice a decrease in the EMI too. But if you have no problem in paying the current EMI amount, you can continue with the same even after switching the loan to another lender. You could ask, why should I do that? Well, by keeping the EMI constant, you could finish the loan early and save more. The same EMI will help cut down the overall tenure and reduce interest payments even more. Let’s consider an example to understand the benefit better.
Example – You are paying a 5-year personal loan of INR 7 lakh for the last 2 years at an interest rate of 16.50% per annum. Now you have got a personal loan balance transfer deal of 11.35% per annum. How much more could you save if you choose to pay the same EMI as opposed to a reduced EMI after a balance transfer? The table below gives you a clue. Let’s check out!
|Personal Loan Details||Balance Transfer Estimates When Paying the Same EMI (In INR)||Balance Transfer Estimates When Paying the Reduced EMI (In INR)|
|EMI Payable at 16.50%||17,209||17,209|
|Interest Payable at 16.50% Over 5 Years||3,32,550||3,32,550|
|Interest Paid Till Now||1,99,094||1,99,094|
|Outstanding Balance at the End of 2 Years||4,86,074||4,86,074|
|EMI Payable at 11.35% After Balance Transfer||17,209||15,994|
|Interest Payable at 11.35% After Balance Transfer||82,074||89,715|
|Interest Paid Till Now + Interest Payable After Balance Transfer||2,81,168||2,88,809|
|Savings||51,382 (3,32,550-2,81,168)||43,741 (3,32,550-2,81,168)|
So, you could see more savings when keeping the same EMI after a personal loan balance transfer. With the same EMI, the overall tenure will reduce by 3 months. Keeping in mind the charges associated with a balance transfer, keeping the same EMI makes more sense. However, some lenders may be averse to the same EMI theory post a balance transfer. The reason is simple – they would like to earn more from you. So, choose a lender that offers you the repayment flexibility as mentioned above.
How Should You Calculate Balance Transfer Estimates?
Use the Personal Loan EMI Calculator to compute the repayment estimates associated with a balance transfer. It’s there online for you to use. Just enter the loan amount, interest rate and tenure in the calculator to see the estimates. You can experiment with figures to find the best repayment estimate and request the lender to offer you the same.