The term “Personal Loan Balance Transfer” is pretty much self- explanatory. By availing this service or product, you will be able to transfer an outstanding personal loan from one lender to another. This simply means that you have an opportunity to switch lenders anytime during the tenure of active personal loan, if at all need arises.
Irrespective of the type of the loan, it is possible to transfer your debt to another lender, provided the terms and conditions are advantageous. Personal loans being insecure loans that attract interest rates, you must carefully assess your requirements, costs involved and the benefits you are bound to enjoy before you choose the new lender.
You are likely to incur additional expenses when you opt for a personal loan balance transfer. You will be paying a significant sum of money to foreclose your personal loan with the active lender. You will also be paying a loan processing fee to the new lender who takes over your outstanding debt. The key is to determine if the switch is beneficial. Loan balance transfers are also known as refinancing as an existing loan is now funded again, by a different lender. That said; let’s take you some common benefits associated with personal loan balance transfer:
Lower Interest Rates
A personal loan balance transfer is preferred primarily because it makes a personal loan more affordable. While the interest rates offered are quite competitive, you can still save some money if you opt for a balance transfer at a significantly lower interest rate than what you are paying at present.The interest rate difference must be at least 1% or more for the deal to be financially rewarding,as you will also have additional expenses in getting the debt transferred.
Getting a personal loan balance transfer at a lower rate also makes sense only when you time the switch right. It is a known fact that the equated monthly installments (EMI) that you pay during the first couple of years of the loan term go towards settling the interest payable on the debt and the EMIs at a later stage are adjusted against the principal amount.
Given the pre-requisite that you must have track record of paying EMIs regularly for at least for 12 months to even apply for a balance transfer, it is advisable that you consider switching lenders by the second or third year of a 5-year personal loan if at all you wish to save on the interest part of the loan.
Flexibility of Loan Term
The maximum tenure of a personal loan is 60 months (5 Years). Depending on the loan amount, interest rate and your capacity to repay the loan you can decide on the loan term. It is important to settle for a loan term that makes your EMI more affordable; you must pay the EMI without delays or defaults and also take care of other monthly expenses as well. Once you agree to a loan term, you will not be able to pay up the loan earlier or extend the term without penalties.
Personal loan balance transfer allows you to get your outstanding loan refinanced by a new lender, under different terms and conditions. Your outstanding dues may be far less than original loan amount and if there is a significant spike in monthly income, you may fully settle the loan by opting for shorter loan tenure.
On the other hand, if you need more time to settle the debt, you are free to request for a longer tenure; with a lower interest rate and longer loan term, your monthly EMIs will decrease and allow you to address other expenses comfortably.
Again, there is always a risk of paying back far more (in interest) than the loan amount when you settle for longer loan tenure. It is important to work out the costs to actually benefit from this option.
Top-up / Additional Funding
You can avail additional funds when you opt for a personal loan balance transfer from one lender to another. The new lender usually offers a top-up personal loan at discounted interest rates when you get your personal loan refinanced. You now have a fresh loan from the new lender for a higher amount (outstanding personal loan + top-up funding) and a set of different repayment terms and conditions.
This feature is advantageous if the original personal loan is not adequate enough to fund your requirements. We do know that personal loan products are capped. The maximum amount of money you can borrow through a personal loan differs from one lender to another.
If you’ve taken a personal loan for a particular reason (home renovation, medical expenses etc.,) but still need more money to see things to completion, it makes sense to get your loan refinanced and avail top-up funding. Though a life-saver, remember that you are getting deeper into debt!
- While key benefits of personal loan balance transfer are lower interest rates, affordable EMIs, additional funding and a new loan term, enhanced service quality and other benefits are welcome add-ons.
- Exorbitantly high penalties, poor customer service, limited payment modes and several other practical difficulties that crop up during the loan tenure can also be resolved by switching to a new lender; however you will need to carefully ascertain if your problems will be fully remedied.
- Usually waiving an occasional EMI, discounted processing fees, affordable charges and speedy services, are some perks one can expect when getting their personal loan refinanced.
- Opting for a personal loan, personal loan balance transfer, additional funding and other services from your bank is often more beneficial as you tend to be more comfortable with the environment. Being a regular customer, your bank is likely to prioritize your requests and serve you better as well!
- As always, analyze the personal loan balance transfer deal and time the switch right to avail the maximum benefits but only if the offer suits your needs.