A personal loan is one of the best financial assistance in a financial emergency when there is a crying need for funds. With a simple application process and no restriction on the end use of a personal loan, getting a personal loan makes sense when you run out of other option to get funds. But sometimes, you may not be satisfied with your current lender of a personal loan due to a variety of reasons, such as high interest rate, limited tenure, or poor customer service. If you are not happy with your current lender for any reason, a personal loan balance transfer is a good option for you.
Benefits of personal loan balance transfer
Personal loan balance transfer is a process that allows you to transfer the outstanding balance on your personal loan from your current lender to a new lender. Almost all leading banks such as ICICI Bank, HDFC Bank, Axis Bank, and many other banks and NBFCs offer a personal loan balance transfer. When you transfer your personal loan from one lender to another, you can enjoy the following benefits.
Lower interest rate
Lower interest rate is the cogent reason for a Personal loan balance transfer. New lender usually offers reduced rates on a personal loan balance transfer. Lower interest rates reduce the financial burden and help you pay off the loan faster. For example, Mr M has a personal loan of, say, Rs. 5 lakhs for a 5-year repayment tenure at 12.5% interest per annum. For the entire tenure, the interest rate applicable on Mr M’s personal loan would be Rs. 1,74,938. After 10 installments, he decides to transfer his personal loan from the current lender to a new lender, which is ready to offer a lower interest rate, say 11%. Now Mr M’s principal outstanding is approximately Rs. 4,36,682. After balance transfer, the total interest rate he needs to pay for the outstanding loan would be Rs. 1,09,655. Hence, by transferring the personal loan balance to the new lender, Mr M saves almost Rs. 16,111 in the form of the interest rate.
Top-up loan facility
Sometimes, the loan amount you have borrowed previously may not be sufficient to meet your requirements, or meanwhile you may need more money to complete other task. In such situations, you can apply for a top-up loan with the personal loan balance transfer. Many lenders offer the option of top-up loan during balance transfer on a personal loan. Hence it is better option to get a top-up loan on balance transfer than applying for a new loan.
While you transfer your outstanding loan amount to a new lender, you have the option of adjusting your loan tenure as per your convenience. You can increase or decrease the repayment tenure. EMI and interest will increase and decrease accordingly. You can use an online EMI calculator to get a sense about your potential installment.
Option to choose a lender with better Services
If you are not satisfied with your current lender due to poor service, a personal loan balance transfer is a better option to get associated with a bank of your choice. You can transfer your personal loan from the current lender to a new lender who you think can offer you better services.
Personal loan balance transfer is now easy and can be executed online. If you think you can get lower interest rates on your HDFC Bank personal loan or get a top-up loan at better terms from a new lender, you should consider a personal loan balance transfer.
Eligibility criteria for personal loan balance transfer
As you are a borrower of a personal loan with your current lender, the eligibility requirement for a balance transfer is pretty simple. You should have a good credit score and a good history of paying your EMIs on time.
You should have the following documents for a personal loan balance transfer
For salaried employees:
- 3 months’ salary slips
- 3 months’ bank statements showing salary is being credited
- Identity proof: any of – voter ID card / Aadhaar card, passport, driving license
- Address proof: any of – telephone bills / electricity bills / water bill (for the last three months)
- PAN Card
- KYC documents
- Filled personal loan balance transfer application with photographs
For self-employed individuals:
- TAN Card
- Balance Sheet and Profit & Loss Statements, with relevant annexures and schedules, from the last 3 years
- Current account statements of the business
- Savings Account statements of the individual
Personal loan balance transfer process
Transferring a personal loan from one lender to another is simple and hassle free. All you need to do is collect some import information, like outstanding principal amount, EMIs paid till date, current rate of interest, and on whose name the demand draft should be made, from the current lender. Then approach the new lender to apply for a balance transfer.
Things to consider before you transfer your personal loan
Cost of balance transfer: A personal loan balance transfer comes at a price. Before transferring the outstanding balance on your personal loan to a new lender, you must check the cost involved. Bank may charge you some percent of your total amount as a processing fee. If your loan amount is high, processing charges may cost you more than you save on interest reduction. So, talk to your lender to waive off or reduce the processing fee.
Evaluate the profits: Sometime, the profit may be insignificant despite much effort. So, you must know how much you save and what other benefits you get with offers from a new lender. You can use an online EMI calculator to assess the savings.
Read the fine lines carefully: Borrowers tend to skip the fine lines when they sign an application form. The fine prints may contain prepayment charges and other fees. Lenders have different policies regarding prepayment charges – some may charge a nominal fee, while others may charge a heavy penalty on prepayment.
Personal loan balance transfer is now very easy and involves minimal documentation. You can transfer your personal loan to a new lender through online methods. However, every lender conducts creditworthiness assessment and if you have been punctual with your loan and credit card payments, your application for a balance transfer will be accepted without any problem.