When facing financial emergencies, you might find yourself needing personal loans at higher interest rates. However, once the emergency is over, you can explore the option of transferring your outstanding personal loan balance to a new lender offering better terms. By securing a personal loan at a lower interest rate, you can reduce your monthly payments (assuming the remaining tenure stays the same) and decrease the total interest paid over time. Additionally, during the transfer process, you can also:
- extend loan tenure,
- avail top up loan facility
- consolidate multiple loans into a single loan
How does personal loan balance transfer work?
When you transfer your personal loan, you apply for a new loan with a different lender who offers a lower interest rate than your current one. Once approved, the new lender pays off your existing loan and gives you a new loan. Then, you start making monthly payments to the new lender according to the new terms in your agreement.
When you switch your personal loan to a new lender, there might be additional fees involved such as processing fees and documentation charges, similar to when you originally applied for the loan. Additionally, your current lender may charge prepayment or foreclosure fees since they'll have to close your loan account before the agreed-upon tenure. It's important to note that according to RBI regulations, lenders cannot charge prepayment or foreclosure fees on personal loans with floating interest rates, but there may be charges for loans with fixed interest rates. Also, some lenders may have rules that prevent borrowers from paying off their loans early until a certain number of EMIs have been paid. So, when deciding whether to transfer your loan, consider all these costs to determine if it will actually save you money in the long run.
Step by Step Guide for Exercising Personal Loan Balance Transfer
Here's a steps to transferring your personal loan from one bank to another:
Step 1: Compare interest rates offered by different lenders and see how much you could save on interest.
Step 2: Figure out the costs involved in transferring, like processing fees from the new lender and any prepayment charges from your current lender.
Step 3: Subtract the transfer costs from your potential interest savings to see if it's worth it.
Step 4: Choose a lender based on rates, fees, disbursal time, and any restrictions on prepayments.
Step 5: Apply for the loan with the new lender and provide necessary documents.
Step 6: Once approved, the new lender may ask for additional documents like a No Objection Certificate (NOC) from your current lender. Once submitted, they'll transfer the loan amount.
Things to Consider Before Transferring Your Personal Loan
When transferring your personal loan, keep these points in mind:
Calculate Savings: Make sure the money you save by transferring your loan is more than the costs involved, such as processing fees and prepayment charges.
Choose Tenure Wisely: Select a loan tenure that fits your budget for monthly payments (EMIs).
Consider Top-Up Loan: If you need extra funds, see if the new lender offers a top-up loan along with the balance transfer.