Personal loans are an easy way to acquire funds instantly. Be it a medical emergency, or a grand wedding ceremony to plan, personal loans are a convenient method of obtaining the amount required. While these enticing offers have much to offer, the interest rates tend to be higher.
A personal loan balance transfer can help reduce the impact of high EMIs on your finances. This facility allows you to transfer your outstanding loan amount from one lender to another. But how does it affect your credit and your cash flow? Let’s find out.
Why Should You Opt for a Personal Loan Balance Transfer:
Now you might be wondering how this facility can benefit you. Here are some reasons why you should consider transferring your personal loan balance.
1. Better Interest Rates:
Typically, a personal loan’s interest rate ranges between 10% and 22%. These lead to higher monthly instalments, putting a strain on your finances. But a balance transfer can help you get better interest rates, helping you save money. Let us understand this better with an example.
Suppose, you took a travel loan of ₹10 Lakhs for a tenure of 5 years with an interest rate of 15%. Your current EMI will amount to approximately ₹24,847. You paid the monthly instalments diligently for about a year.
Now, assume that you can transfer your outstanding balance to another lender who offers a lower interest rate of 10.5%. Let us assume that you transfer your pending balance of ₹9,33,553 to the new lender, rounded off to ₹9,35,000. With this, your EMI will drop to ₹23,935, which you are liable to pay for the remaining 4 years, helping you save up a lot.
2. Additional Benefits:
Perhaps your current lender charges part-prepayment charges of up to 2% on your outstanding balance. A new lender may offer zero charges on such payments, as an additional perk for changing your lender.
Along with the lower interest rate and other beneficial terms, the lender may provide some extra benefits like zero processing fees. These help lower your overall loan costs and allow you to save on such extra expenses. You can also choose a new lender to get better customer service.
3. Top-up Facility:
In case you are on the lookout for additional funds to meet unexpected expenses, a top-up on your loan can help. Did you take a personal loan to go on a Europe tour and misjudged the amount required? It is difficult to estimate the exact amount for such scenarios. In such circumstances, getting additional funds sounds like a great idea!
Such travel loans can be backed by a top-up that your existing lender might be reluctant to provide. However, a personal loan balance transfer may open up the closed doors for you. You can opt to transfer your loan to a lender who is willing to offer a top-up on your loan, helping you meet your additional needs. Some financial institutions may also allow you to extend the tenure on the existing loan amount, easing the instalments you need to pay.
4. Improve Your Credit Score:
Your credit score seems to be diminishing. Don’t worry! A personal loan balance transfer can help you. Wondering how? Well, changing your plan from one with higher interest to a lower rate helps you repay your borrowed amount faster. Additionally, if the new lender offers benefits like zero charge prepayments, you can utilise these facilities to close your debt faster. This will help boost your creditworthiness and help raise your credit score.
Things to Ponder Over When Transferring Your Loan Balance
1. Eligibility Criteria:
Just like getting a fresh loan, a personal loan balance transfer also comes with its own set of eligibility criteria. These can vary from one lender to another. Criteria common among a majority of lenders include a clean repayment history of at least 12 months.
At least one existing credit card in good standing is essential to be eligible for this facility. Furthermore, the balance transfer amount is expected to be at least ₹50,000.A No Objection Certificate (NOC) from the original lender might also be required for transferring your loan.
2. Financial Benefit:
Before applying for a balance transfer ensure that you have calculated your interest and repayment structure accurately. It is advised to transfer your loan within the first half of the set tenure to make the most of the benefits a transfer has to offer.
It is possible that if you apply for a transfer towards the end of your tenure, you may end up spending more. Even with the attractive rates offered, you may not save much on your interest in such scenarios. Furthermore, it is crucial to take into account the additional costs like transfer fees and other charges. After considering it all, take a decision.
3. Additional Perks Offered:
Pay close attention to the additional benefits the new lender has to offer. Put these into perspective and check how they can be used to your advantage. Plan your finances for the coming years in advance, before taking a decision.
A lender may offer a top-up, zero processing and prepayment charges, along with other perks. It is essential to plan your repayment around these and ensure that you are not losing out on extra money in the process.
4. Terms and Conditions:
It is vital to delve deep into the terms and conditions of your new loan plan. Read all the fine print with extreme caution. These play an essential role in helping you understand your loan. Evaluate the terms to avoid future disagreements and unpleasant experiences with your new lender.
Be it a personal loan for travel or medical emergencies, you can transfer your outstanding and save money on interest and other additional charges. A personal loan balance can help you benefit from lower interest rates and better add-on services. So, utilise this convenient facility and soften the blow of EMIs on your wallet.