A balance transfer takes place when you transfer the outstanding balance of your credit card or home loan to a new lender for favorable interest rates or lower tenure. Financial institutions provide a balance transfer facility on credit cards that help you consolidate the entire pending amounts on different credit cards to a single account. Similarly, home loan balance transfers can also help you avail of a better interest rate with your new lender.
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Since pending dues can significantly affect your credit score, you can avail of a loan transfer to manage your finances efficiently and improve your credit score.
Credit card balance transfer is the best way to deal with pending debts and pay off huge credit card bills. This is a convenient feature of credit cards that allows you to get rid of debt cycles that keeps on accumulating due to compounding of interest. Credit card balance transfer helps you in the following ways:
But this step is effective only when the bank where you are transferring the balance is offering a lower interest rate than your existing bank. Initially, banks allow you to pay back the balance without charging any interest for the first few months. Some other banks levy a nominal interest for the first six months post the balance transfer. Depending on the bank to which you have transferred your balance, you may also get the EMI option to pay back the pending amount.
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Banks also have a facility that allows borrowers to transfer home loans to other lenders. The process is a convenient way to lower the interest rate you are currently paying. This is a convenient process to change the interest rate or tenure of your home loan by switching your loan to a new lender.
Firstly, you have to submit an application requesting the transfer of loans to some other bank. Once the request is initiated, your bank will issue a statement containing the loan details and a letter of consent. You need to submit your loan documents to your new lender and wait for the approval. Once your new lender is satisfied with your track record, it will sanction the outstanding loan amount to the previous bank for the closure of your home loan.
However, you must keep in mind that the transfer of loan to a new lender is similar to taking a fresh loan. This is beneficial for people who are paying high-interest rates on their loans and are looking to reduce their interest burden. You may also try a balance transfer during the initial years of your home loan as at this time it makes up 80% to 90% of your loan EMI.
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