Should You Opt For A Personal Loan Balance Transfer?
Posted on Wednesday, December 20th, 2017 | By IndusInd Bank
When a person has taken loan from a particular financial institution and transfers his/her outstanding principal amount to another bank, this process is known as the balance transfer of loan, or simply transferring loan balance. This is a facility, which allows you to approach a bank for a loan equivalent to the outstanding amount with your current bank, to repay your current bank and continue your loan with the new bank. Known as refinancing or the takeover of a loan, this is a lucrative facility that reduces the rate of interest that you must pay against your loan and eventually helps you save money on the interest you actually end up paying.
It’s available on all kinds of loans including personal loans. The basic motive behind a personal loan balance transfer is to reduce the burden of debt. Lower interest rates, reduced EMIs and better features allow you to lower the cost of your loan and save money in the long run.
Getting your personal loan transferred is a fairly simple process. You must get in touch with your current financial institution and get a quote regarding your current personal loan. This quote would include the outstanding principal amount, the rate of interest being paid, the tenure that has lapsed and in favour of whom the payment must be made. In case of personal loans, 12 months of repayment history must exist for a balance transfer to be allowed.
By approaching the bank, you will get an idea of all the schemes and services being offered on personal loan balance transfers and may compare these to your benefit. Once you have decided on a bank, you may apply for the transfer by providing the following documents –
For salaried employees –
· 3 months’ salary slips
· 3 months’ bank statements which show salary to be credited
· Identity proof
· Address proof
· PAN Card
· KYC documents
· 2 photographs
The minimum age of an applicant must be 21 years, while the age at maturity of the loan should not exceed 60 years. A minimum net monthly income of INR 25,000 is required to be eligible for this scheme.
For self-employed individuals –
· PAN 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
The minimum age in this category is 25 years, while the maximum age at the maturity of the loan is 65 years. An annual net income of at least INR 4.8 lakh post-tax deduction must be shown to be eligible.
Factors Influencing Loan Transfer
Transferring your personal loan would usually be a profitable and rewarding step. However, you must choose the right scheme, with terms that suit you, to enjoy the benefits of a transfer. There are several factors which you must consider before deciding to transfer your loan. Some factors which could help you decide include:
· Calculating the Total Outflow – You must consider the tenure over which you are paying EMIs. Though it may seem an attractive deal to pay smaller EMIs over a longer duration, you end up paying interest for a longer duration. Since you continue to pay interest on the outstanding loan amount for this extended duration, this scheme increases your total outflow towards the loan. It is advisable to compare the total amount you would be required to pay at your current bank and transfer the outstanding amount if that amount turned out to be higher than the outflow the new bank would cause you. For instance, with a personal loan balancer transfer, you will pay 15% of interest rate instead of 18%, and if your loan amount is INR 5 lakhs, then you end up saving INR 48,000 over 60 months (tenure).
· Studying the Processing Fee and Other Allied Charges – A number of charges could be levied by a particular institution to approve a personal loan balance transfer. It is
essential that you consider the processing fee, documentation charges, fee for pre-payment, penalties in case of default and any other chargeable contingencies to assess the total cost of refinancing. This total cost should be closely compared with the potential benefits of lower interest rates. If the benefits outweigh the costs, you should make the transfer.
· Collateral to Outstanding Ratio – Depending upon the loan amount that is outstanding, you could offer the new bank a collateral which is of substantially lesser value. If a large amount of the loan has been repaid, it is rather unfair to have to deposit the same amount of security as you had done for the original loan amount. By offering a lesser collateral, you could use the remaining amount to secure other loans if need be, or negotiate a more favourable interest rate in case the bank refuses to accept your offer.
Advantages of Loan Transfer
Transferring your personal loan or refinancing has some benefits. Such as:
· Reduced Interest Rates – If your existing bank is unwilling to reduce the rate of interest on your personal loan, it is advisable to transfer the loan to a bank willing to offer lower rates, longer duration or reduced EMIs to help you save money. It is wise to refinance as early as possible given that you stand to save more.
· Standing Instruction Facility – During refinancing, it is easy to avail a facility whereby a standing instruction to the bank would automatically deposit the required EMI from your account towards the loan account on the repayment date. It becomes easier not to default this way.
· Loan top-up facility – In case of personal loans, you could choose to transfer the outstanding amount and then raise more funds to be able to meet your requirements.
· Ease of Application – You are not required to submit complicated documents and may improve the features of your existing loan by following a simple transfer process. Transferring your loan is a simple process of notifying your current bank and applying to a new bank to avail better terms.
Transferring of the personal loan balance is a hassle-free way of saving money, which should be undertaken by everyone who has taken a loan, at least once during their tenure.