Introduction
People often take a personal loan in an emergency situation. Hence, they opt for a personal loan from the lender who offers them a loan quickly. At times, this loan could have been offered at a higher interest rate. Later on, they realise that another lender is offering them a personal loan at a lower interest rate.
In such a situation, an individual can switch to another lender who offers them a better interest rate through a personal loan balance transfer facility. In this blog, we will learn about this in detail and how this can benefit a borrower.
What is a Personal Loan Balance Transfer?
Personal loan balance transfer is a facility under which you transfer the outstanding balance of a personal loan from one lender to another lender. This is because a lower-interest personal loan is offered by another lender. As a result, your overall interest burden reduces, which also reduces your overall debt. Along with lower interest, lenders can also offer other benefits like better customer service, longer tenure, and higher loan amounts.
Benefits of Personal Loan Balance Transfer
Transferring a personal loan to another lender can be very beneficial. Let’s understand the Benefits of personal loan balance transfer: -
1. Interest Savings
One of the main reasons people opt for personal loan balance transfer is the interest savings. The lower interest personal loan from another lender reduces your EMI instalment. You have a lot of savings due to this. But you shall compare the interest savings with the associated cost of balance transfer before opting for it.
2. Increased Repayment Tenure
A new lender offering a balance transfer considers it a fresh new personal loan. Hence, they can give you an option to choose a longer repayment tenure. This is one of the important benefits of personal loan balance transfer. You can choose the tenure as per your budget. Longer tenure means smaller EMI, which results in more savings. Due to this, you can manage the loan in a more efficient manner.
3. Higher Loan Amount
The Lender who is giving you a balance transfer option can give you an additional amount. This can be a higher loan amount or a top-up loan. The top-up loan will be offered after a few months/years if you have repaid the new loan properly. You can use this extra cash for debt consolidation, home improvement, or any other purpose.
4. Customer Service
At times personal loan balance transfer gives you the benefit of better customer service. Your present lender may be offering you poor service. A new lender may assure you of better services with some extra features like EMI reminder, online payment, and many more. Hence, it makes worthwhile to transfer the loan.
However, better customer service would always be the secondary benefit you expect from a lender. Your main purpose for a loan transfer would be interest savings, a top-up loan, and a longer tenure.
5. Access to Promotional Offers
Many times, the lender may give you an exciting offer to attract you to a balance transfer. They can offer a discount on processing fees or may waive them. They may also pay off the loan foreclosure charges for you. This kind of promotional offer makes the personal loan balance transfer more attractive and tempting.
Things to Consider Before the Option for Personal Loan Balance Transfer
There are certain precautions that a borrower needs to take while opting for a balance transfer of a personal loan. Let’s understand that: -
1. Foreclosure Fee
When you opt for a balance transfer, you will have to close the personal loan with your existing lender. There is a foreclosure fee for this charged by the present lender. This can be waived off by the present lender, or it may be paid by the new lender. Properly check this well in advance. It shall not be more than the interest benefit you get through the loan transfer.
2. Processing Fee
Balance transfer is considered a fresh new loan by the lender. They charge processing fees for this. It is a small percentage of the loan amount or a flat fee. Do check if the new lender where you are transferring the loan is offering you a discount or waiving off the processing fees.
3. Terms and Conditions
You will have to go through a fresh agreement with a new lender for a balance transfer. Do check all terms and conditions before you sign the agreement. There should not be any hidden clauses or charges that can affect you.
Conclusion
Personal loan balance transfer is a very strategic financial decision that can bring long-term benefits for borrowers. When you transfer a personal loan to a new lender with low interest rates, you get reduced EMI, better repayment tenure, and additional benefits. This reduces your financial burden and helps you manage EMI in a better way.
But before you opt for a balance transfer, do check the costs involved. The additional costs, like processing fees and foreclosure charges, shall not exceed the interest benefits. With proper planning, the balance transfer of a personal loan will help you to optimise your financial health and reduce liabilities.