Introduction

A personal loan is an unsecured loan taken by individuals from a bank or a non-banking financial company (NBFC) to meet their personal needs. It is provided on the basis of key criteria such as income level, credit and employment history, repayment capacity, etc. A personal loan is not secured against any asset and the borrower does not put up collateral like gold or property to avail it. Hence, in case of a default, the lender cannot auction anything you own. The interest rates on personal loans are higher than those on home, car or gold loans because of the greater perceived risk in granting these.

Today, an increasing number of consumers are starting to take personal loans for their purchases, especially the big-ticket ones. They are also converting their purchases into equated monthly instalments (EMIs). Personal loans help households meet any shortfall they experience in buying a house or a car, in children's higher education, or even in cases of medical contingencies, among other things.

What Is Personal Loan Balance Transfer

A personal loan balance transfer is a process that involves a customer transferring his/her total outstanding personal loan amount from one lender to another one that offers a lower interest rate on the outstanding loan amount. While opting for a personal loan balance transfer, you need to carefully evaluate the balance transfer offer and choose the best one to save on the total interest payable.

Personal loan balance transfer process does not require any security or collateral to be provided to the lender. This process could involve certain foreclosure charges that are levied by the current lender. It could also attract processing fees that may be charged by the new lender, and stamp duty on the loan agreement, if applicable.

How Does Personal Loan Balance Transfer Work?

In case of a personal loan balance transfer, the new lender pays off your existing loan. In case your existing loan has a prepayment clause, you might need to pay those charges. In addition to this, you will also need to bear the processing fees for your new loan. However, when you consider your savings on the lower interest rate, it can significantly compensate for these charges involved.

Additional Reading: How does a Balance Transfer Work?

Benefits of Personal Loan Balance Transfer

Here are some of the benefits of personal loan balance transfer that you can consider before making a decision.

  1. Interest Rate Benefit: One of the biggest benefits of the personal loan balance transfer facility is that it lowers the interest rate and thereby reduces your interest burden through reduced EMIs. The new lender would offer a lower rate of interest on the loan transfer. It is however always better to assess the need, evaluate the offer and compare the rates and features before going ahead with the balance transfer facility.

  2. Extended Loan Tenure: While transferring personal loan from one lender to another, you can negotiate the tenure of the existing personal loan and get the repayment tenure of the loan extended or reduced as per your requirements. With the extended tenure, you can have a lower monthly burden of EMI but may have a higher total interest pay-out. On the other hand, in the case of short tenure, the overall interest burden decreases but the individual payments are higher.

  3. Enhanced Features: Depending on your repayment track record and existing income you can negotiate with lenders for better loan features such as waiver of last EMI, zero processing fees, lower interest rates, etc. The personal loan balance transfer facility can reduce the interest burden and also allow better features on the loan.

  4. Top-up loan Facility: Most banks offer a top-up loan facility along with personal loan balance transfer. These come at very competitive pricing and a relatively lower rate of interest.

Important Factors to Consider in Personal Loan Balance Transfer

Before opting for a personal loan balance transfer, you must consider some of the important factors mentioned below:

  1. Evaluate New Offer: It is necessary to calculate how much you will need to pay and how much you can save with the balance transfer. Using a personal loan balance transfer calculator to assess the potential savings can be beneficial. This can also be found online.

  2. Cost Involved: Personal loan transfer from one bank to another bank involves some cost as mentioned earlier. The existing lender may charge for foreclosure of the personal loan and the new lender could levy a certain percentage as processing fees for the balance transfer. All these costs are to be considered while analysing the benefit of the balance transfer facility.

  3. Terms and Conditions: It is important to be aware of all the loan terms before signing on the dotted line for a personal loan balance transfer. You must go through the loan transfer agreement details thoroughly to be aware of key information and any hidden charges that might be applied to the transfer.

  4. Offer vs Requirement: Always consider the balance transfer facility only if it suits your specific requirement. Top-up loans and many other features of the balance transfer facility may not sometime suit the requirement of all customers. In such cases, consider the offer carefully including the overall benefit and long-term implication of the balance transfer offer.

Eligibility Criteria for Personal Loan Balance Transfer

Following are some of the basic eligibility criteria that you need to meet for personal loan balance transfer:

  • You must have an existing personal loan from another bank

  • Banks generally mandate a minimum loan balance of Rs. 50,000 or above

  • Good EMI payment track record of at least 12 months

  • Good credit score and overall credit history

Documents Required for Personal Loan Balance Transfer

  • Filled application form with passport size photograph duly signed

  • Identity and age proof (PAN card/ passport, driving license/ Aadhaar card/ voter id card)

  • Address proof (Electricity bill/ telephone bill/ Aadhaar card/ rent agreement)

  • Salary slip of last 3 months, and last 6 months bank account statement

  • Personal loan statement of loan to be transferred

End Note

Personal loans are easy to borrow but when the lender starts charging heavy interest rates you may need to consider personal loan balance transfer and opt for a different lender. Today, there is a lot of competition among lenders and therefore you can benefit by opting for the best interest rates and improved terms or conditions. Personal loans can come in handy when you need finances the most and with the help of personal loan balance transfer, you can always benefit from competitive interest rates and better services. Always ensure that you maintain a good credit history and thereby a good credit score by making timely re-payments of personal loans. You can always check your credit score at CreditMantri to keep a track of your credit history.