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Should You Opt for Personal Loan Balance Transfer?

IndianMoney.com Research Team | Posted On Wednesday, January 08,2020, 03:35 PM

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Should You Opt for Personal Loan Balance Transfer?

 

 

What is a Personal Loan Balance Transfer?

A personal loan balance transfer is a facility through which you can transfer the outstanding principal of an existing loan from one lender from another. This facility enables borrowers to get a new loan at a better interest rate.

A Balance transfer is a lucrative option for people who have taken a loan. This facility enables you to lower your overall interest burden if you have availed loans during a high-interest rate regime. Previously, the facility was only available for credit card debt only but now this facility is offered on all types of bank loans.

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Balance transfers allow you to re-examine your existing loan and take action to make the necessary changes to reduce your overall debt or to avail additional benefits on your existing loan.

See Also: When Should I Get a Personal Loan?

Why You Should Consider a Personal Loan Balance Transfer?

Given below are some of the reasons due to which you can opt to transfer the outstanding balance to a new loan:

  • To Get a Better Interest Rate: One of the main reasons people often opt for a personal loan balance transfer is that it lowers their interest rate burden through reduced EMIs. Usually, people who have availed a loan during high-interest rate regimes can seek this facility if they are able to get a lower interest rate from other lenders. However, it is better to compare and evaluate the total cost of the new loan before applying for one.
  • For Longer Loan Tenure: Sometimes people opt for a personal loan balance transfer to extend the tenure of their existing loan. If you are finding it difficult to pay your monthly EMI either due to increased family obligations or due to an unexpected rise in their expenses then balance transfer can be your way out. You can negotiate the loan tenure and increase it as per your requirement. With an increased tenure, you will have a lower monthly EMI burden although your overall interest payout will increase. You can also negotiate for a lower tenure to decrease your overall interest payment.
  • Better Terms on Loan: Depending on your repayment records or increased income, you may be offered better loan offer from other lenders. Thus if you are getting enhanced features like a waiver of last EMI, zero processing fee, better terms of pre-payment of loan, lower interest rate etc. then a personal loan balance transfer makes sense. Thus it will not only work to reduce your interest burden, but also give you better benefits in the form of enhanced features.
  • Top-Up Loan Facility: Sometimes borrowers need more credit to take care of some intermittent financial emergencies. In such circumstances, you can opt for a balance transfer facility if your existing lender does not offer you a top-up loan. Many lenders or banks can offer additional loans at a relatively lower price if the borrower is ready to transfer their outstanding amount on a personal loan.
  • To Opt-Out of the Services of the Current Lender: Personal loan balance transfer can be the best option for people who are not satisfied with the customer care services of their current lender. With a balance transfer facility, you can choose a lender who is known for providing better services to customers.

See Also: Know All About Pre-Approved Personal Loans

Illustration of How Personal Loan Balance Transfer Affects Your Repayments:

If you have availed a personal loan and you are considering a balance transfer facility then you can avail a reduced interest rate and thus reduce your debt burden.

Let’s understand this with the help of an illustration:

Suppose Deepak has availed a personal loan of Rs. 3 lakhs for 3 years at an interest rate of 18% per annum, then his monthly EMI stands at Rs. 10,845 and his total interest payout will be Rs. 90,446.

After 1 year of EMI payment, he feels cheated when he finds out other lenders are charging a lower interest rate. He considers a balance transfer and now his new lender offers him a loan at 11.29% thus reducing his interest burden significantly. After the loan transfer his new EMI drops at Rs. 10,115 and therefore he is able to save Rs. 16,560 over the remaining course of his repayment.

See Also: How to Get a Better Interest Rate on a Personal Loan

If you too are planning to transfer your existing loan, then first you can calculate the amount of money you can save by using a balance transfer calculator online. If you find you are saving a considerable sum after adding overall cost then you can opt for this facility. Thus your motive behind loan transfer should be to reduce the debt burden and not increase it.

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