If you have taken a personal loan, chances are that a large amount of your salary is being eaten up by the EMIs before you can even put it in your pocket. It is a vicious cycle and you can use a balance transfer to unlatch yourself from this cycle by paying smaller EMIs and thus saving more money.
A balance transfer is a process of paying off one loan by getting another loan at a cheaper rate. By doing so, you can save money on installments. It may be even more useful in case of a personal loan as they are available at a higher interest rate as compared to secured loans such as a home loan.
Reasons for the transfer of a personal loan:
- Attractive rate of interest
- Offers and discounts on the transfer of loan amount
- Dissatisfaction with the service offered by the current lender
- Top-up loan facility that allows one to borrow additional money
If a new lender is offering you a better interest rate on personal loans, then you can save considerably on the interest payments and can surely make a switch. However, a small difference in the interest rate is of no benefit as banks charge a 1% processing fee for effecting the loan transfer. If there is a significant difference, say about 1.5 % to 3%, then a switch is worth the effort and cost involved.
Further, if your personal loan is coming to a close and the outstanding amount due is only a small portion, then there is no purpose served in making a switch.
Eligibility criteria for personal loan balance transfer:
You need to fulfill the following eligibility criteria before applying for a balance transfer:
- You must be running an existing personal loan from another lender.
- The loan amount that you need to transfer must be at least Rs. 50,000.
- Clean EMI payment track record of 12 months.
- A CIBIL score of 700 and above.
- How to apply for personal loan balance transfer?
- Follow the below-mentioned steps on how to transfer your personal loan from one bank to another:
Check the current interest rate on personal loans that you can get and calculate the savings on interest payments.
Calculate the estimated cost on account of various fees and charges. On the basis of your calculation, decide if you want to transfer the loan or not.
Shortlist the new bank where you want to transfer the loan.
Apply for foreclosure letter and NOC from your existing bank.
Apply for the loan with the new bank and submit the documents as asked by the lender.
Receive sanction letter from the new bank, sign the agreement and get loan disbursed by the new bank to your existing bank.
On receipt of loan outstanding, your existing bank will cancel all the cheques and ECS and close your loan account
So, before opting for a personal loan balance transfer, make sure that you calculate interest savings. Also, calculate the estimated cost on account of various fees and charges. If there is a significant difference in the interest rates offered by the new lender then a switch is worth the effort and cost involved.