Personal loan transfer is one of the most common terms seen and heard in the financial market. Personal loan transfer is essentially when after repaying few EMIs, the borrower might transfer the rest unpaid principal amount to another bank of choice for a lower rate of interest. Some primary features of personal loan balance transfer are,
This is the prime attraction of a personal loan balance transfer facility. The EMI gets lower for the borrower as the interest rate decreases. Balance transfer, also called refinancing is the best option at the early years of the loan; this is the time when the interest rates are at their peak.
Tenure period expands
When a personal loan balance gets transferred to any other bank, it becomes easier for the bank to pay off the rest of the amount. Another benefit of stretching the loan timeframe is, it improves the credit score; just one condition, the EMI must be paid regularly. As the interest rate gets reduced, the amount to be repaid automatically becomes easier.
The name of the bank and the amount to be paid changes, and nothing else! Personal loan processing is easy.
Some important facts which must be kept in mind while opting for personal loan balance transfer are,
When personal loan balance transfer takes place, there is a need to pay processing fees once again. So, it is important to calculate the fees and check whether it is beneficial to switch or not.
While it is beneficial to get more time in hand to repay the loan, it might lead to more cash outflow. So, it is important to calculate which is more in your case; the cash outflow or the loan timeframe.
Terms and conditions
It is also advisable to go through the terms and conditions of the new financial institute before transferring the personal loan amount. If there are pre-payment clauses, the borrower needs to pay the charges before transferring the personal loan.
What is the process of personal loan balance transfer?
In this process,
- The bank contacts the borrower of another bank and pitches the lower interest rate
- If the borrower agrees,
- The new bank repays the outstanding loan amount to the former bank.
- In the case of pre-payment penalties, the borrower pays the same.
- The new bank might ask to open a savings account with it.
- The borrower is then liable to make rest of the payments to the new bank along with the processing fees.
So an effective cost-benefit analysis is important in the balance transfer process. If the interest rates, processing fees and overall loan amount get lower than the existing loan, there are a host of benefits associated with a personal loan bank transfer.