Most banks and Non-Banking Financial Institutions (NBFCs) not only finance fresh loans but are also open to re-financing loans, where they take-over an active loan from another lender. Personal loans are no exception, and the process is relatively simpler as there is no collateral involved in the process.
While ready availability and speedy, hassle-free processing has made it easy for you to avail personal loans, choosing the right loan offer from the right lender definitely demands time and effort. Having made a well-informed decision to avail personal loan from a specific lender, why would you want to get your loan re-financed by another lender?
Borrowers usually opt for balance transfer if:
They are not happy with services of the current lender
They wish to enjoy benefits of low interest rate
They want to extend the tenure of loan / cut down the EMI (Equated Monthly Instalment)
They want to top-up the loan
If you are faced with similar problems or requirements then check out if balance transfer of your personal loan can offer respite. You will however have to again compare outstanding loan transfer or re-financing offers from reputed lenders before signing up for the deal.
Here are few important things that you need to consider before going ahead with personal loan balance transfer.
Balance transfer very similar to Personal Loan is offered only to borrowers who are eligible for the deal. While you will need to check out the lender-specific eligibility criteria after you have short-listed the potential lenders, there are few common conditions that you must satisfy in order to get your personal loan refinanced.
You must have a clean credit history and good credit score/rating
You must have settled your EMIs on time at least for the past 1 year
Your outstanding debt must be Rs.50, 000 or more to get the personal loan transferred to a new lender.
Total Cost of Balance Transfer
We already know that personal loans are not cheap but getting them refinanced also attract costs. Some deals may also have few benefits that are really useful, but it is important to carefully work out the total costs of balance transfer instead of just going by the low interest rate that the lender has offered.
In order to transfer your personal loan, you will have to foreclose the loan you have taken from your current lender. Foreclosure charges are usually hefty as the lender loses interest earned on the loan. These charges are likely to vary based on the outstanding amount.
Personal loan balance transfer is usually treated as a fresh personal loan by the new lender who takes over your outstanding dues after fully settling your loan with the original lender. The new loan is bound to attract processing fees and other service charges, which you will need to pay in addition to your EMI.
Other Expenses: Some banks may require borrowers to open a savings bank account with them in order to service the loan. If you have requested for additional funds, the amount will be credited to this account or EMIs may be automatically debited from it. Expenses associated with having an operational savings bank account with internet banking facilities must be included in the costs.
These are but some of the usual costs associated with transferring outstanding debts. It is important for you to check out lender-specific requirements and costs before finalizing the offer.
Analyze Offer For Suitability
Lenders usually spruce up balance transfer deals with additional features to make them more appealing to borrowers looking for better loan options. Top-up loans and insurance products are some of the common add-ons that are available with refinancing offers.
While top-up loans do come in handy in case the personal loan is not adequate to meet your monetary requirements, they simply add to your debt burden.
Insurance products are useful but you must have an option to decide if you require insurance cover. If any such additional features become a pre-requisite for balance transfer, take your time to explore offers from other lenders before you take the plunge.
Perks like waiver of processing fees or last EMI are of course welcome, but may hardly make a difference considering the loan amount.
Flexibility of loan tenure is another important reason why borrowers opt for balance transfer. While extending the loan term does bring down the monthly EMIs, allowing you some disposable income for other expenses, it can and generally increases the cost of the loan. Alternatively you can opt for a shorter term if you can afford the EMI and get out of debt faster.
Remember that you may be paying back far more than the amount you actually borrowed when you opt for longer loan term. You will have to analyze both affordability of EMI and the actual cost when deciding the term of the loan.
These are main considerations that must be addressed when you are looking to refinance your personal loan.
It is needless to mention that you have to verify the credibility of the new lender and the quality of services as you may need to stick with this lender until you fully repay the debt.
As for the low interest rates, all lenders offer competitive rates but not at a risk of losing income. While it is advisable not to focus only on interest rates when opting for a balance transfer, the switch may prove beneficial if your current lender charges way above trending market rates
Avoid offers that are too good to be true, steer clear of frills and freebies, and as always read the offer carefully, request for clarifications if needed and sign on the dotted line only if you are comfortable with what you are getting into.