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