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Personal Loan Balance Transfer

People take personal loans for a number of reasons; be it for personal expenses, a medical emergency, debt consolidation, credit card payoff, vacation and sometimes even to cover unexpected expenses. Of course, a lot of thought process goes into place before actually availing a loan.

Many banks offer personal loans at different rates of interest, some of which may be higher or lower. The loan tenure can also vary from bank to bank. People, at times, may have up to more than one personal loan in different banks. Keeping track of the EMIs, rates of interest and tenures of these loans can be quite a hassle. Wouldn’t things be simpler if all these were managed easily! This is where loan balance transfer comes into the picture. Wondering what is a balance transfer? Read on to know more details about this facility.

Personal loan balance transfer is an option where an individual can transfer his outstanding amount to another bank. A number of banks offer this facility at attractive EMIs and interest rates. Once the borrower has chosen to transfer the amount from his bank to some other bank (or financial institution) the applicable charges and rates of the new bank will be levied on the loan.

According to many financial experts, opting for a personal loan balance transfer can be a beneficial move in the long term, since it can improve a person’s credit score and also help him manage his finances in a better manner.

Features of Personal Loan Balance Transfer

By transferring the balance amount to a new bank, the borrower can also avail an additional top up on his existing loan, to meet any immediate or additional credit requirements. Mentioned below are some of the salient features:

  • Balance transfer is usually the most sought-after option to reduce interest rates on the outstanding debt. The bank may offer a better (lower) rate of interest as compared to the existing one. Factors like tenure, processing fees and additional charges, if any, should be considered before the transferring process.
  • Borrowers also opt for transfer to reduce the loan EMI burden along with the tenure. A reduced duration may signify early loan closure, in comparison to the previous bank’s or financial institution’s term. This is beneficial for borrowers who have opted for a longer repayment period.
  • Transfer of the existing loan balance to another bank also plays a key role in improving one’s credit score. This will, in turn, open up more credit options for future requirements. However, it is essential to research thoroughly before opting for a transfer.

Eligibility Criteria for Personal Loan Balance Transfer

Every bank will have its own set of terms and conditions when it comes to providing the loan transfer facility. In order to be eligible for a balance transfer, the applicant should fulfill the following criteria:

  • Have an existing personal loan from another bank
  • Minimum amount for transfer should be INR 50,000
  • Cleared EMI payments for at least 12 months
  • CIBIL score should be 700 and above

Documents and Charges

Though the borrower doesn’t have to submit any collateral or security for the balance transfer, the following documents are necessary to process the application:

  • Filled-in application form with one passport-size photo
  • Statement of the loan to be transferred
  • Age and identity proof (Aadhaar card/ Driver’s license/ Passport/ PAN card/ Voter’s ID)
  • Address proof (Aadhaar card/ Driver’s license/ Electricity or telephone bill/ Passport/ Rent agreement/ Voter’s ID)
  • Last 3 months salary slip
  • Last 6 months bank statement

An interest rate will be charged on the balance amount, as per the banks’ rules. Other charges of the transfer include:

  • Loan processing fee of the new bank
  • Foreclosure or prepayment fee of the existing bank
  • Stamp duty of loan agreement (may vary according to state)

Loan Balance Transfer Process

An in-depth research is always fruitful to avoid future hassles. With the Reserve Bank of India announcing interest rate changes on a quarterly or half-yearly basis, checking the on-going rate is mandatory. Here’s the procedure to be followed for a loan balance transfer:

  • Compare the dynamics, features, rates and terms of the personal loan offered by other banks and financial institutions.
  • Study the options of the selected bank and interest rate. To check for eligibility, submit the application and corresponding documents to the shortlisted lender.
  • Once the eligibility is determined, calculate the current rate and interest savings on the existing loan.
  • Get an NOC and foreclosure letter from the existing lender. Apply for the transfer and submit the required documents/records in the new bank. Confirmation of the loan proposal from the new lender can take up to two to three weeks.
  • A letter with the borrower’s outstanding loan amount is issued by the existing lender, which has to be submitted to the new bank/financial institution. Once all the necessary loan documents are submitted to the new lender.
  • The original loan is closed after 15 days and EMIs will be deducted as per the new scheme.

Things to Consider

As attractive and easy as it may seem, a personal loan balance transfer has its own share of pitfalls. Here are some points to be checked before opting for a balance transfer:

  • Before transferring the amount, check the terms and conditions of the new lender to avoid future surprises. Read through the fine print to check if there’s any processing fee on the new loan.
  • Check if other providers are offering a transfer with a lesser fee and similar interest rate. Ensure that the new offer reduces the installment without increasing the tenure.
  • Make sure the new provider’s interest rate is the same as mentioned during the time of offer. Many lenders, to attract new customers, may offer teaser rates for a short time. Check in advance to avoid ending up with the same rate as before.
  • Opt for a balance transfer to save a substantial amount. Never transfer during the end of the repayment tenure.
  • Calculate the total loan repayment amount at both lenders to ensure one doesn’t end up paying more than the previous one.

Different financial institutions and banks may offer balance transfers at attractive interest rates. However, it is always advisable to weigh the pros and cons before choosing the best suitable according to one’s balance transfer.