- Transferring your running loans to another lender has savings in store for you!
- But how should you do this to maximize? Read this post for the same.
When you are in an emergency and the cash flow is constrained, you borrow a loan. However, after some time, your loan could become a burden to you, forcing you to lower the burden. And there is only one way to do so which is known as a loan transfer. Yes, you can transfer your loan EMI to another bank to reduce the EMI and interest rate. Read the post and know how the transfer works and what benefits it provides.
What is a Loan Balance Transfer?
The transfer is a process by which you can transfer the balance principal amount of your loan from one bank to another. Hence, the motive of a loan EMI transfer is to decrease the burden of the loan payment. And, before going for the transfer, you must check the total amount you save after this procedure. The loan transfer process does not require collateral from the borrower, and if there is an existing mortgage asset, it can be transferred to the new bank. Only a nominal fee for transfer is needed to transfer the loan.
How does the Loan Balance Transfer Work?
The loan transfer process is simple: you just need to close your loan account first with the existing lender and then pay a transfer fee to your new bank. Your new bank will pay off the existing loan and you have to pay to the new lender in equated monthly installments at a new rate of interest.
For example, your existing personal loan of INR 6,00,000 comes at an interest rate of 14.00%. If you transfer the same to a new bank with a 9.80% rate of interest for the remaining tenure, you’ll save on EMI as well as interest. Here look at this table to see the difference.
|Original Loan Amount||INR 6,00,000|
|EMI @14%||INR 13,961|
|Estimated Interest Outgo @14%||INR 2,37,657|
|Interest Paid Till 3 Years||INR 1,93,369|
|Outstanding Balance at the End of 3rd Year||INR 2,90,775|
|EMI @9.80% for the Remaining 2 Years||INR 13,391|
|Interest @9.80 Over 2 Years||INR 30,608|
|Interest Paid Till Now + Interest Payable Over the Next two years||INR 2,23,977|
|Estimated Savings in Terms of EMI||INR 570|
|Estimated Savings in Terms of Interest Payment||INR 13,680 (2,37,657 - 2,23,977)|
So, from the above example, you know how the transfer will save your loan payments.
Benefits of Loan Balance Transfer
Lower Rate of Interest – The advantage of a loan balance transfer facility is that it comes at a lower rate of interest, which lowers the interest burden with reduced EMIs. Generally, the new lender provides you a lower rate of interest on the loan transfer. You can transfer your home loan, personal loan and credit card debts to a new bank if you think it will help you in paying the borrowed amount easily.
Top-up Facility – There are some banks that offer you a top-up loan in advance with the transfer which will help you to manage the additional financial requirements. With this, you could consolidate the two loans and make payment at the new rate of interest.
Consider the Following Factors Before Doing a Transfer
Compare Interest Rate – You need to check the interest rate the new bank offers to you with the existing rate of interest. Because, if there is not much difference between the two, it won’t help you save much. The difference in interest rate has to be a minimum of 3%-4% while you are looking to transfer your personal loan balance. In the case of a home loan, though, even a difference of 0.25%-0.50% can bring significant difference to the repayment because of the longevity of this loan
Prepayment fee of Existing Lender & Processing Fee of the New Lender- The user must calculate the prepayment of the balance amount and see how much he/she will save with that to compare it with the balance transfer. Because, if the new bank charges high fees from you, the transfer won’t benefit you and the repayment remains the same with no or minimal savings.