Personal loans are a swift way to procure cash for an emergency or any other needs. They have soft terms with respect to the eligibility criteria and the income range of the borrower. They are disbursed as quick as 24 hours to place the required funds in your bank account. However, such alluring financial aids always have a catch. Yes, personal loans come with a relatively higher interest rates of anywhere between 10.50% – 22%, which might eat into your monthly cash flow. So, if you have been repaying a personal loan with high interest rates, it is a good option to consider a Personal Loan Balance Transfer. 

What Is A Personal Loan Balance Transfer?

Personal loan balance transfer is a process of transferring your outstanding personal loan balance from one bank or Non-Banking Financial Company (NBFC) to another. Originally, this method was only applied to the process of transferring the outstanding balance on your credit card to another provider, but now it also covers personal loans, home loans, and other types of loans.

Why Should You Think Of Personal Loan Balance Transfer?

For better Rate of Interest: One of the main advantages of the transfer facility for personal loan balance is that it decreases the interest rate and thus reduces the interest burden of the lender through lower EMIs. Generally, the new lender would offer a lower interest rate on the transfer of the loan. Let us look at an example to understand how this works: 

Let us assume that you have an existing Personal Loan with an outstanding of Rs.3 lakh at an interest rate of 16%. The repayment tenure is 5 years, which brings the EMI to Rs.7295. If you opt for a balance transfer of this outstanding amount to another provider, you will get a lower interest rate, which will reduce your total repayment amount. The borrower saves close to Rs.35,000 through the balance transfer option. Look at the below illustration

     
   Existing  Post Balance Transfer
 Total Outstanding  Rs.3 lakhs
 Repayment tenure  5 years
 Interest Rate  16%  12.50%
 Monthly EMI  Rs.7295  Rs.6749
 Total Interest on outstanding amount   Rs.1,37,725  Rs.1,04,963
 Total Amount Repaid  Rs.4,37,725   Rs.4,04,963
 Savings through balance transfer  -  Rs.32,762

 

For attractive benefits and upgrades: The new lender may offer better deals and benefits for your personal loan in the form of nil processing fees, zero prepayment charges, etc. 

You can get a top-up on your existing loan: If you have a good credit history and a healthy repayment record, the new lender might offer to top-up your personal loan while you are transferring the balance to their institution. Some lenders may offer to extend the tenure on your existing balance as a benefit of the balance transfer. 

Get a bank with better service: One of the reasons why borrowers switch to a different lender is for want of better service. If you are not satisfied with your current lender, balance transfer allows you to choose a bank with better customer service. 

You get a chance to improve your credit score: By opting for a balance transfer and repaying the personal loan quicker, you have the chance to improve your credit score

Eligibility Criteria For A Personal Loan Balance Transfer

For a personal loan balance transfer, the eligibility criteria are the same as for a personal loan and differ from lender to lender. The basic eligibility criteria most lenders are looking for, however, is given below:

  • Should have an existing personal loan with a bank/NBFC

  • The minimum outstanding for a balance transfer should be Rs.50,000

  • Should possess a clean repayment record on the existing personal loan for the past 12 months at the least

  • One or more loans or credit cards in good standing according to the new borrower or financial institution's criteria

Documents Required For A Personal Loan Balance Transfer

For Employed Persons

  • Duly signed application form prescribed by the new lender

  • Identity Proof (PAN card/driving license/passport/voter ID/Aadhaar Card etc)

  • Address Proof (Aadhaar Card/Passport/ Landline Bill/ Latest Electricity bill/Rent agreement etc)

  • Passport size photographs of the applicant

  • PAN Card copy 

  • Last 6 months bank statement

  • Last 3 months salary slip

  • Statement of personal loan from current lender (the loan that needs to be transferred)

For Self-employed Persons

  • Duly signed application form prescribed by the new lender

  • Identity Proof (PAN card/driving license/passport/voter ID/Aadhaar Card etc)

  • Address Proof (Aadhaar Card/Passport/ Landline Bill/ Latest Electricity bill/Rent agreement etc)

  • Passport size photographs of the applicant

  • TAN Card

  • Last 3 years Balance sheet along with profit and loss statement pertaining to business

  • Last 6 months bank statement of individual and business entity

  • Statement of personal loan from current lender (the loan that needs to be transferred)

Things To Consider While Opting For A Personal Loan Balance Transfer

Any financial decision requires careful consideration of various factors. A personal loan balance transfer is no different. Though it has many advantages, one has to assess all the factors to determine its benefits to oneself. You may consider the following points: 

Calculate the actual monetary benefit you will achieve: Once you receive an offer, calculate the actual monetary benefit you will beget through the balance transfer. This will help you to decide if it's worth going for the balance transfer. 

Consider the cost involved: Though you might get an attractive interest rate, you may be required to spend some money on the processing fees with the new lender and foreclosure charges with the existing lender and so on. It is wise to find out these charges before going for the balance transfer to understand if you are really benefiting with the transfer. 

Understand the additional benefits that are offered: The new lender might throw in quite a few offers to lure you. Go through these offers carefully to understand if they really suit your needs and then take up the balance transfer. Many a times we might purchase a product for its additional offers and end up not using any of them. To avoid this, enquire about the offers’ terms & conditions before making a decision. 

Carefully dissect all the terms & conditions: Take time to go through all the terms & conditions of the new lender’s product. Read the fine print to understand what you are getting into. This may avoid any future disappointments or unpleasant surprises. 

Closing statement: Borrowers can benefit from a balance transfer facility by reducing the total interest cost and overall long-term savings. The process of transferring personal loan balance can take only a few working days that too with minimal documentation. Borrowers too would find it easier to repay the loan sooner with the reduced interest rate burden and increased income level over time. A personal loan balance transfer can be a lucrative facility if undertaken after careful analysis and assessment of the balance transfer proposal.