Personal Loans are unsecured loans that many individuals take from financial institutions to meet planned or unplanned expenses. Here at Hero Fincorp, we approve and allocate these loans based on key criteria such as credit score, employment, income, and repayment capacity. With us, borrowers do not need to secure these loans against any asset, property, or gold as collateral.
Getting a Personal Loan has become extremely easy and quick due to the 100% digital procedures many lending institutions follow. However, once the applicant receives the loan, EMI management becomes an essential part of their financial management. Those having difficulty managing their Personal Loans must know about the Personal Loan balance transfer option. It is a little-known feature that can help borrowers save significantly on interest payments. Here, we will cover everything one must know about it.
What is a Personal Loan Balance Transfer?
These days, a large number of consumers take
Personal Loans for big-ticket expenses and purchases. By doing that, they convert their purchase into EMIs or equated monthly instalments. Personal Loans help people meet any financial shortfalls they experience in planning a wedding, sending a child for higher education abroad, going on a vacation, renovating a house, or in case of a medical emergency. However, not all Personal Loan offers are the same, and one may find better options while handling the current loan. That is when they may consider transferring their loan balance to another lender with a better offer.
A Personal Loan transfer is a process of transferring an outstanding loan balance from one lending institution to the other, offering a lower interest rate. Like a Personal Loan, the balance transfer process does not require any collateral, security, or guarantor. However, the individual transferring the loan may need to pay prepayment charges to the current lender according to their policy and the latest RBI guidelines. The process may also involve processing charges and stamp duty fees on the new loan agreement, if applicable. While opting for a loan transfer, one must carefully evaluate the new loan offer and choose an appropriate plan to benefit from it.
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When a borrower opts for a balance transfer of loans, the new NBFC
pays off their existing loan. If it has a prepayment clause, the borrower has to pay the associated charges. Moreover, they have to bear the processing and documentation charges for the new loan according to the NBFC's policy. However, considering the savings gained through the new loan's low-interest rate, the borrower can significantly compensate for the paid charges.
Benefits of a Personal Loan Balance Transfer
Here are some benefits that come with a Personal Loan Transfer:
- Savings on the Interest Rate: The lower interest rate is one of the biggest benefits borrowers seek with a balance transfer facility. Most borrowers transfer their loans when they find a lower interest rate offer from another NBFC. The reduced interest means more savings and less interest burden for the borrower, helping them save money and repay the EMIs easier. That is why it is always advisable to evaluate the offer, compare the rates, and assess the requirement before moving ahead with a balance transfer.
- Extended Tenure: During the transfer process, negotiating the tenure and extending or reducing it according to the borrower’s repayment capacity is possible. With an extended tenure, they get a lower EMI burden to pay each month. On the other hand, choosing a shorter loan term will reduce the overall interest cost but will increase the individual EMI payments.
- Better Features: Depending on the borrower's income and repayment track record, they can negotiate with the lenders for better features like the last EMI waiver, zero processing charges, lower interest rates, etc. The loan balance transfer facility reduces the interest burden while allowing better loan features.
- Top-Up Loan Facility: Most lending institutions offer a top-up facility on loans along with personal loan balance transfer. These top-ups have very competitive pricing and relatively low-interest rates.
Important Factors to Consider While Transferring a Loan
Before opting for a loan transfer, consider the following factors to make the right decision:
Carefully Evaluate the New Offer: Calculating the transfer-related expenses is necessary. A balance transfer calculator can help evaluate the potential savings and see how beneficial they would be. It will help one know how much they will need to pay and how much they can save with the Personal Loan transfer.
Consider the Costs Involved: As mentioned earlier, transferring a loan balance from one lender to the other involves some inevitable costs. The current loan provider charges foreclosure or prepayment charges to compensate for the loss they bear due to losing their customer. They would have earned more if the borrower retained their loan account and continued paying their EMIs. The new lender may also levy processing charges for loan processing, documentation, and balance transfer. Consider all these costs while analysing the savings from a balance transfer.
Terms and Conditions: Reading the new lender’s terms and conditions is necessary before signing on the dotted line for a balance transfer. Go through the agreement details thoroughly and be aware of the key information and hidden charges applicable to the transfer.
Consider Offer Versus Requirement: An existing borrower should consider a balance transfer of loans only if they fulfil a specific requirement with it. Features like top-up loans may sometimes not suit the customer’s requirements. In such a situation, consider the long-term implication and overall benefit of transferring the loan rather than focusing on the top-up offer.
Also Read: Know About Various Modes Of Payment And How These Make Your Life Simpler Steps for Personal Loan Balance Transfer
A balance transfer is a financial transaction in which the borrower transfers a
debt from one lender to another. The process begins with applying for a new loan and repaying the current loan balance. These are the steps involved:
- Apply for a new loan with lower interest rates and easier terms and conditions.
- Initiate the transfer by submitting the loan to be transferred, including the amount due, issuer name, and account number.
- Once the process completes, the new lender pays off the loan balance to the old lender and charges the amount to the borrower with an interest rate.
- Make monthly payments to repay the new loan with revised rates and conditions.
Personal Loans are the best funding sources for various needs. However, when the borrower finds lower interest rates from other lenders, they may consider a Personal Loan balance transfer. Borrowers can benefit greatly by getting the best interest rates and favourable terms and conditions. Always maintain a good
credit score by making repayments on time and building a strong credit history for better loan terms in the future.
