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Balance Transfer: The Best Way to Reduce your Personal Loan Interest Rates

by Melanie Peterson
You may have experienced that your cash flows are restricted and you feel as if your hands are tied up when you are struck by an emergency. Personal loans are widely regarded as a ‘go to’ measure in such situations and you end up getting a personal loan in a hurry, at high interest rate, to sail through troubled waters as soon as possible. It happens and it happens to the most!

It also happens that when you ‘weather the storm’ and normalcy returns as regards to your financial conditions, you may look to reduce your interest burden and to breathe a little easier.  Can anyone really do that?

Yes, we can now! Thanks to the concept of the personal loan balance transfer.

What is a Personal Loan balance transfer?

The concept of balance transfer was originally started for credit cards but has been extended to almost all credit facilities such as home loan, personal loan, auto loan etc.

In the process of a personal Loan balance transfer, a customer transfers his outstanding Personal Loan amount from his existing lender to another. Usually, the new lender offers a lower Personal loan interest rate on the balance loan amount, as a reward for the transfer and pays off the existing debt of the customer. Such a process decreases the overall debt burden on the borrower. The borrower need not pledge any collateral in this process. But, he may require to incur a nominal charge including professing fee, foreclosure charge and stamp duty on the loan agreement (if applicable). Post the balance transfer, the borrower will pay all the remaining EMIs of the personal loan to the new lender. Different personal loan balance transfer schemes are on offer from different banks/NBFCs these days. You need to assess these offers meticulously and choose the one that gives you maximum saving on the interest payable.

Why should you opt for a personal loan balance transfer?

Here are a few reasons why you should consider to transfer your existing personal loan-

• You can save on interest amount
Lenders usually offer reduced interest rates if you transfer your existing personal loan balance from other lenders. Thus, you can benefit from lower EMIs and can save your hard-earned money every month. An example will help you understand it better. Let us suppose Mr Anil has got a personal loan of Rs 3, 00,000 @ 15 % interest per annum for a period of 3 years. This means he would pay an interest amount of Rs 74386 over his loan tenure, with an EMI of Rs 10,400 every month.

Now, let us assume that after paying 14 EMIs and with a balance of Rs 2, 00,000, Mr Anil decides to transfer his personal loan balance to a different lender that is offering an interest rate of 12%. Upon completion of the transfer process, his total interest payable on the remaining loan amount will be Rs 23,718 as against Rs 29840 before transfer. Also, the monthly EMI will also get reduced to Rs 9322. You can also Check EMI Through Personal Loan Calculator before applying for personal loan.

• You can load your debt off much faster 
Post the balance transfer, you will have a lower rate of interest to deal with along with a lower EMI. This means you can get rid of your debt more quickly. Therefore, if you are having a tough time handling your debt because of its high interest rate, you may consider opting for a balance transfer option and get rid of it later on.

• You can consolidate your payments
If you are juggling with more than one personal loans from multiple lenders, you may opt for balance transfer and better transfer all your existing loans to the lender giving you better loan features ( such as zero processing fee, last EMI waiver etc). This way, you will be entitled to get additional benefits (apart from the usual reduction of interest rates) which are absent with some of your existing lenders. Also, post the transfer, your personal loans will have one single due date. You will not need to keep track of multiple payment dates any longer, every month.

• You can adjust loan tenures as per your need
While transferring your personal loan to a new lender, you can negotiate on the tenure of your existing loan and get the repayment tenure extended or decreased with the new lender as per your need. If the tenure is extended, you can enjoy even lower EMIs, but can have a higher payout on the total interest. If the tenure is reduced, the overall interest payout decreases but your EMIs will be on the higher side.

• You may get the top-up facility
Many reputed lenders provide a loan top-up facility along with balance transfer of personal loans, too woo borrowers. You can consider balance transfer if you are in need of additional credit. Such additional top-ups usually come with competitive and lower interest rates and less documentation. When it comes to top-up loans along with balance transfer, the outstanding personal loan balance is paid directly to the previous lender and the fresh loan amount will be credited straight into the borrower’s account.

Personal Loan Balance Transfer Eligibility Criteria

A borrower needs to meet a few eligibility criteria in order to avail the facility of the personal loan balance transfer. Before approving such a transfer, the prospective lender mainly ascertains the repayment capacity and credit health/creditworthiness of the borrower. Some common criteria maintained by most banks in this context include:

  • The applicant must have a personal loan running with another lender
  • The borrower must have a clean record of past personal loan EMI payments. The lender will check records of at least 12 previous EMI payments.
  • The present outstanding loan amount to transfer has to be in excess of Rs. 50,000 so as to initiate the transfer process.
  • A credit score of more than 700 will enhance the eligibility of the applicant.

Personal Loan Balance Transfer Documentation Criteria

You need to furnish a few basic documents along with your Personal Loan Balance Transfer application-

  • Duly signed passport size photograph 
  • Age and identity proof ( any one from driving license /PAN card/ passport/Voter ID / Aadhaar card)
  • Proof of address (Anyone from telephone bill /Electricity bill/ rent agreement/Aadhar card)
  • Bank account statement  of last 6 months, salary slip of last 3 months 
  • Statement of the personal loan to be transferred

We have seen from the above discussion that, balance transfer option can come to benefit borrowers due to a decreased interest burden and savings in the long run. With the reduced interest burden and increased income over a period of time, the borrowers can eventually repay the personal loan sooner than he expects.

On a closing note, I would like to add that personal loan balance transfer is a profitable proposition only when utilized after a proper evaluation and careful analysis of different balance transfer offers available. It’s quite natural for most borrowers to feel tempted for such offers. But, one would do well to apply his mind and weigh up the pros and cons before simply jumping on to such seemingly irresistible deals.

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