Personal Loan Balance Transfer
Last Updated : July 8, 2016, 10:41 a.m.
Just imagine if you are paying the EMIs of your existing personal loan, and all of a sudden one day, you receive a call from another leading bank, giving you a chance to transfer your loan. Well, that bank is also offering you lower interest rates on the top-up loan, if case you are interested. Now, the question is-what you will do? Will you accept this lucrative offer? Actually not. Yes, because you first need to evaluate how this offer suits your needs, if you find it worthy or beneficial, only you should proceed further and make a decision.
For an example, if you have borrowed a loan of Rs. 5,00,000 at the rate of 15.5% for 5 years. You paid EMIs (inclusive of interest) in that bank for 2 years. After that, you found a bank offering you the balance transfer option of the remaining outstanding amount at an interest rate of 11.49%, check out what would be your EMI and savings? EMI in the balance transfer option will come out to be Rs. 11,358, lower than Rs.12,027 on the existing loan. Taking the EMIs into account, the balance transfer will yield a saving of Rs.8,028 over the existing loan.
Below is the table showing EMI, yearly payment and yearly saving on personal loan transfer:
| Banks | Interest Rate (p.a) | Loan Amount (in Rs.) | Tenure (in years) | EMI (in Rs.) | Yearly Payment (in Rs.) | Yearly Saving (in Rs.) |
|---|---|---|---|---|---|---|
| Existing Bank | 15.5% | 5,00,000 | 5 | 12,027 | 1,44,324 | |
| New Bank | 11.49% | 3,44,486 | 3 | 11,358 | 1,36,296 | 8,028 |
When it comes to getting a personal loan , there are various important factors that you need to consider. In the same manner, you need to be careful when doing a balance transfer. Let’s check out the factors you need to consider while transferring your existing personal loan to a new lender.
Lower Interest Rate
There might be a possibility that during the time of availing the personal loan you were offered with high interest rates based on your income and profile at that time. But, now if you have a better professional career, and have improved financial track record, there are chances that lenders are willing to offer you lower interest rates .
Check the Difference of Interest Rate
The extent of savings on a balance transfer will depend mostly on how lower the new rate is in comparison to the existing rate. As a personal loan runs for a maximum of 5 years, the difference in interest rate has to be around 4%-5% minimum. In case the difference is much lower, don’t go for a balance transfer as the savings will feel negligible after the fee is taken into consideration. Let’s understand with an example.
Example – Ravi and Madhusudan are servicing a personal loan of INR 8 lakh each at 17% per annum. Both have paid EMIs successfully for 2 years and there are 3 years left for the loan. Considering their excellent repayment track, both got balance transfer offers but from different lenders and at different interest rates. While Ravi got the balance transfer offer at 12%, Madhusudan found a 15% rate on balance transfer. How will it reflect on their repayment should they opt for a balance transfer? Let’s find out!
| Repayment Aspects | Repayment Estimates for Ravi | Repayment Estimates for Madhusudan |
|---|---|---|
| Original Loan Amount | INR 8,00,000 | INR 8,00,000 |
| EMI @ 17% | INR 19,882 | INR 19,882 |
| Interest Payable @ 17% Over 5 Years | INR 3,92,924 | INR 3,92,924 |
| Interest Paid Till 2 Years | INR 2,34,828 | INR 2,34,828 |
| Outstanding Balance at the End of 2 Years | INR 5,57,658 | INR 5,57,658 |
| EMI @ 12% on a Balance Transfer | INR 18,522 | - |
| Interest Payable @ 12% on a Balance Transfer for 3 Years | INR 1,09,142 | - |
| EMI @ 15% on a Balance Transfer | - | INR 19,331 |
| Interest Payable @ 15% on a Balance Transfer for 3 Years | - | INR 1,38,272 |
| Interest Paid for 2 Years + Interest Payable After a Balance Transfer | INR 3,43,970 | INR 3,73,100 |
| Savings in Terms of EMI | INR 1,360 | INR 551 |
| Savings in Terms of Interest | INR 48,954 | INR 19,824 |
As you can see Ravi saves more than Madhusudan on a balance transfer. The new lender will charge a balance transfer fee, which will decrease the savings that you see in the table. But Ravi will still have sizable savings from the transaction. The reason is the much lower rate he has got on a balance transfer deal.
Check the Time at Which You Get a Balance Transfer Offer
Interest payments are more than the principal in the initial years of a loan. Lenders don’t allow you to do a balance transfer before the first 12 EMI payments. So, the time for a balance transfer comes after the first year of the loan. Ideally, in a 5-year personal loan, the balance transfer yields when you do it before 2-3 years at a much lower rate.
Better Services: It is also possible that the services offered by your existing lender may not be that good, say-levying extra charges without informing and so on.
Need for Extra Money: You may be in need of extra money because of some emergency. So, instead of taking a new loan, you find it better to go for a top-up loan facility. And, when you had transferred you personal loan to a new lender, you asked for an increase in the loan amount.
So, let’s discuss the points below that you should keep in mind for personal loan balance transfer:
Evaluate the Total Deal
It is very important for you to calculate how much you will actually end up paying in total to your new lender. Your new lender might be offering a lower EMI, but instead of getting into the trap, you need to check that is this thing is coming at the cost of a longer duration? And, if you go for a longer duration, you need to also bear in mind that the overall interest outflow will also increase. In fact, with the help of a balance transfer calculator, you can do the calculations at your end, and compare the various options. Moreover, its always better to pay the higher EMI for a shorter tenure than just paying a bigger amount in total so as to clear your personal loan.
Account for processing fee and other charges
It would not be wrong to say that whenever you are involved in the balance transfer of personal loan from one lender to another, the transaction is subject to a pre-closure penalty. Generally, this fee lies between 1% and 3% of the principal amount being transferred, and is payable to the new lender. In addition to this, you may also be charged with a pre-payment/fore closure charges by the existing lender because the original loan is being paid off before the completion of the tenure of the loan. Thus, here you need to pay the fees twice. So, if you decide to jump the ship, you need to bear the fact that it is an additional expense.
Read details and fine print carefully
If you want to opt for personal loan balance transfer, you will have to fill up and put your signature on various documents. So, it is absolutely important that you should have the key knowledge of the terms and conditions associated with your loan. You need to read all the documents carefully before signing them so that you don’t get into the trap. Don’t sign something which you are not understanding or unaware of. Clear all your doubts, and keep your eyes open.
In a nutshell, opting balance transfer for personal loan is surely a great option for those who have their existing loan running at higher rate of interest. But, before you transfer your loan, access your repayment capacity, and make sure that it gives you the long-term benefits.
Personal Loan Balance Transfer Calculator
If you want to transfer your balance from your existing bank to a new one, you can now easily do it with the help of balance transfer facility. Yes, these days, plenty of leading banks and NBFCs provide you this facility, but have you ever calculated doing so is worthy or not? Well, with the help of a calculator you can easily do all the calculations and know how much you can save while opting for this facility. The calculator will do all the calculations for you and let you know whether doing so is worthy or not by giving you a brief analysis of savings.
Personal Loan Balance Transfer Offers
If you want to opt for personal loan balance transfer facility, plethora of lenders come up to you with various lucrative deals and offers. They tempt you with their host of amazing offers so that you avail the balance transfer from them. But, instead of getting into the trap of false offers, you need to do the thorough research and should go with a lender who is giving you genuine offer.
Personal Loan Balance Transfer from One Bank to Another
Personal loan balance transfer comes to you with plenty of benefits and features, this is the reason that many individuals these days prefer to opt for this facility and are transferring their balance from one bank to another. The process is easy, hassle-free and require not much of a formality. Thus, many people are opting for it and are getting many benefits.
Formalities Required for a Successful Personal Loan Balance Transfer
A successful personal loan balance transfer will require having a good credit score of 750 and above. With such a score, the balance transfer rate can be substantially lower than the existing interest rate. Not only the new lender will do a credit appraisal, but it will also require you to hand it over the necessary documents so that the balance transfer happens without any delay. You will need to submit the loan statement to the new lender. The statement will show the payment you’ve made so far against the principal and interest amount. It will also show the outstanding loan balance. At the same time, you need to get the No-objection Certificate (NOC) issued from the existing lender and hand it over to the new lender. After doing all such formalities, the new lender can allow you a balance transfer.