Personal Loan Transfer: Is It Beneficial To Transfer Personal Loan?
You have undoubtedly heard of personal loans and may have used a few yourself. With so many financial obligations to take care of, there comes a time when you may feel overwhelmed and wonder how to manage these altogether.
One option is to transfer your personal loans, which will make your monthly payments easier and provide you additional access to credit and raise your CIBIL scores.
What is a personal loan balance transfer?
When you transfer the outstanding personal loan balance from one bank to another, you are using the personal loan balance transfer facility. This generally happens when a new bank offers a much lower interest rate than what has been previously provided to you. Interest rates could also be because of better services and benefits being offered by the new bank.
The main reason you can think of availing of this service is to reduce the burden of paying a heavy interest rate and save some extra money. Transferring the personal loan to the new bank would mean paying the excess amount at a lower interest rate. It would also mean that you should be very careful while going ahead with the new bank and signing up for a new transferred loan with them.
How does the balance transfer for a personal loan operate?
In case you were curious, here is a brief example to help you understand the procedure for moving a loan from one bank to another.
For instance, suppose you now have a personal loan from an “X” bank with a higher interest rate and are looking to switch to a “Y” bank for a loan with a lower interest rate. Your name will be used to open a new personal loan account at the “Y” bank with a more affordable interest rate.
It will pay off your personal loan with the “X” bank, and if there are any other charges, it will ask you to incur those in addition to the processing fee for your new loan account.
Benefits of transferring a personal loan
A personal loan transfer may or may not be advantageous to you, depending on certain circumstances. It would be best to weigh the advantages and disadvantages before applying to a new bank. Here are a few situations that may be advantageous to you as you prepare to move your personal loan.
- Interest Rate
Interest rates are one of the key causes of personal loan transfers. It’s possible that you had to accept the loan at a higher interest rate when you took out this loan in the past because you had no other choice. You should always be on the lookout for options where banks decide to offer better interest rates. You should consider accepting the loan if the new bank offers an interest rate of at least 1% or more than 1% lower than your previous loan. A difference of less than 1% might not significantly impact how quickly you can repay the loan in the long term.
- Additional services
Transferring your personal loan could also be advantageous if the new bank offers more services than your old bank. This feature largely depends on your credit history, CIBIL score, and income fluctuations. You might be qualified for services like no processing fees or EMI waivers for the final payment.
- The extended term of the loan
The term, or tenure, of the loan, is frequently mentioned at the time of transfer for personal loans. You can choose to increase or decrease the loan’s term based on how much money is still owed and the interest rate is given.
- Loan in the early stages
You always pay the interest rate when you take out a loan, regardless of the type. Simply put, when you begin making EMI payments, the interest rate will be covered before moving on to the principle. Therefore, in a perfect world, interest payments would account for more than 70% of the first-year payment.
Therefore, you should look into a personal loan transfer at the beginning of the loan itself if you think the interest rate is too high. Since most of the interest rate would have already been deducted from your existing loan, transferring the loan in the second half will not result in any financial savings.
- Increase in the loan capacity
The majority of banks have the option to add to an existing loan, including a personal loan. These services are typically provided at very affordable costs. They may even be of assistance to you if times are tough financially. While you want to transfer the loan, it is preferable to negotiate this alternative to prevent you from taking out more loans in the future.
- Interest rate specific to the workplace
Most offices work in tandem with various banks, providing employees with loans at lower interest rates. Transferring the loan may be advantageous if your business has a similar connection with a bank offering a cheaper interest rate.
Final thoughts
It is always daunting to take a loan, be it personal or any other kind. You should always ensure that when you transfer the loan, it is similar to taking a new loan. So, until and unless there are offers that are irresistible, do not go for a transfer.
Always compare the pros and cons of transferring before signing any new document. If you feel that the benefits are less or similar to the ones you are already getting, it would be advisable to stick with your existing bank and try, and finish off the loan, unless otherwise needed to change with no options available.