Personal Loan Balance Transfer

A Personal Loan Balance Transfer is transferring your ongoing Personal Loan from the existing lender to a new lender. Even a difference of 0.50% to 1% in interest rate will reduce the EMI considerably, depending upon the outstanding balance of the existing loan.

To avail this facility, you have to request for a foreclosure statement with the existing lender. On receiving the foreclosure letter, apply for personal loan with the new lender. If the loan is approved, the new lender will take over the outstanding balance from the existing lender by paying off the amount and you will be paying the EMI to the new lender henceforth.

There are various reasons for you to opt for a Personal Loan Balance Transfer including:

• Reduced rate of interest: You can enjoy lower interest rate with a balance transfer. You will generally choose a bank that offers the best interest rate thus reducing the interest burden on the loan. With this, the EMI will also be reduced, giving you a respite from the month on month financial stress.
• Longer tenure: While switching to a new lender you can negotiate on repayment terms and opt for a longer tenure. This will help reduce payout towards EMIs and will lower your financial stress.
• Improved CIBIL score: Due to financial constraints, if at some point in time you feel that you will not be able to manage EMI payment on time, it is advised to consider the balance transfer. You would have paid the earlier EMIs on time and now not paying the instalment on time will only end up in tarnishing your credit score. Instead, you can go for a balance transfer which will increase the credit repayment cycle and will help to manage your high credit score.
• Top-up loan: If you have an existing Personal Loan and need of an additional loan, you can approach another bank that is offering a loan at a better rate of interest with a top-up. This is the best feature of balance transfer when you are in need of additional funds along with a reduction in interest cost.

The eligibility of an applicant for a Personal Loan Balance Transfer is mainly assessed by income stability and repayment capacity. Apart from this, there are other common eligibility criteria that have to be satisfied to qualify for the Personal Loan Balance Transfer.

• The minimum outstanding loan balance should be 50,000 to initiate the loan balance transfer.
• The EMIs for the current loan should have been paid regularly and on time. At least 12 EMIs of the current loan should have been serviced regularly.
• The credit score of the applicant should be good. The minimum score required will be above 700.

For Salaried employees

• Completely filled and signed application form
• Two coloured recent passport-sized photographs of the applicant
• ITR of the last 2 years
• Identity Proof: Passport/ Voter ID/ Driving License/ PAN Card
• Address Proof: Registered Rent Agreement/ Utility Bill of at least 3 months/ Leave and License/ Passport.
• Income Proof: Last 6 months; salary slip, and Form 16 of 2 years
• Bank statement for the last 6 months of salary account

For Self-Employed

• Completely filled and signed application form
• Two coloured recent passport-sized photographs of the applicant
• ITR of the last 2 years
• Identity Proof: Passport/ Voter ID/ Driving License/ PAN Card
• Address Proof: Registered Rent Agreement/ Utility Bill of at least 3 months/ Leave and License/ Passport.
• Business Proof: GST Returns or Company's incorporation details
• Business Address Proof: Business accounts, balance sheets showing profit & loss statements certified by a CA
• The proof of the business's existence a copy of the partnership deed and business profile.

Along with the above documents, a foreclosure letter from the existing bank indicating the outstanding balance in the loan account should also be submitted.

If you are paying a high rate of interest for your existing loan and feel the EMI burden is not affordable, then it is recommended to look for options where you can get a Personal Loan at a lower rate. Generally, the interest rate on Personal Loan ranges from 10.99% to 20%. Look for an option where you will be getting a considerably lower rate of interest.

It is better to make the decision of switching to a new lender who offers a better rate in the early stages itself since the outgo towards the interest out of the monthly EMI is higher in the initial months. If you switch over to a new lender in the early stages of your availing the loan, saving towards the interest outgo will be higher. Before deciding the new lender, you should calculate the savings on balance transfer using the Personal Loan balance calculator.

The Personal Loan Balance Transfer Calculator will have a list of lenders who will offer the Personal Loan Balance Transfer facility along with their interest and other charges of each lender. With this, you will be able to gauge the extent of ultimate savings after considering the pre-payment charges of the existing lender and the processing fee of the new lender. On doing the exercise, if you feel that the Personal Loan Balance Transfer will be a lucrative one, then go for it.

Following is an illustration of how you can save on the total payable interest by opting for a personal loan balance transfer:

If at any point in time, you feel that you are paying a very high rate of interest for the Personal Loan with your existing lender, you try to negotiate the rate. Considering your track record and credit score, the existing lender may reset your interest. In case that is not possible then you should consider switching over to a new lender.

• Check the interest rates offered by different banks for a personal loan. Compare the interest rates, features, and terms and conditions for the product.
• Compare the processing charges of different lenders. If the loan quantum is high then even a small difference in the processing charges will make a great difference.
• Explore the options to justify the interest rate that you have chosen
• Submit the required documents to the new lender to check your eligibility
• Once eligibility is check is done, apply for a loan balance transfer along with the required documents.
• The new lender will take approximately 2 to 3 weeks to convey the credit decision
• If the loan is approved, you will have to give a request for foreclosure statement to the existing letter. The existing lender will give a foreclosure letter mentioning the outstanding balance in the loan account, if the balance transfer is accepted.
• The new lender will take over the balance outstanding by remitting the outstanding balance to the existing lender. Thereafter, you will have to pay the loan EMI to the new lender.

Personal Loan Balance Transfer involves the following charges:

• Pre-payment charges: Levied by the existing bank
• Processing fees and documentation charges: Levied by the bank that takes over the outstanding balance.

Banks normally collect a charge for the closure of a Personal Loan before the end of the tenure in order to discourage closure of the loans before maturity. The charge ranges from 2% to 5% on the outstanding principal along with an applicable tax on the day of pre-payment which may be huge when the loan quantum involved is high.

The bank that takes over the loan balance will charge an originating charge or processing charge ranging from 0.50% to 2% on the loan amount along with an applicable tax which also may be considerably high if the loan quantum is high.

While doing the cost-benefit analysis to understand how much you stand to gain, even these charges have to be considered, and if the gain is substantial then it is advisable to go for a loan balance transfer.