Given that real estate prices in India are quite high, it’s almost impossible for individuals to purchase a home without a little financial assistance from a bank or NBFC. Even when an individual gets the loan they require, they may want to transfer to another, more cost-effective lender half way through their tenure. This process of shifting from one lender to another is known as a loan transfer. Individuals may choose to switch lenders for a number of reasons, though the most commonly cited reason is a lower rate of interest. So, if you’re currently looking for a way to switch lenders, take a look at a few important things you need to know about before applying for the transfer:
Make Sure You Do Your Math
Although new lenders come up with attractive benefits such as reducing your EMI and increasing your tenure, you should be aware that such benefits may end up increasing the total amount you pay back. Your interest will build up over the years and increase your overall repayment amount. If you have higher EMIs with your current bank, it’s important that you compare the total outgoings for both the banks before you decide. If you do not have a problem with cash, it’s advisable that you stick with your bank and pay the larger EMI and clear off your loan as soon as possible.
Check the Processing Fees and Other Charges
Before going in for a balance transfer of loan, you should check the processing fees, legal charges, valuation fee, stamp duty and other allied charges that the new lender will charge you. Compare this with the reduced interest rates and see if you will end up with a net gain or net loss on transferring loans.
Collateral to Outstanding Ratio
If a large portion of your loan has already repaid, it’s important that you don’t hand over the full collateral to the new lender. Why should you provide security that is almost double the outstanding amount? Offer your new lender a lesser amount of collateral. If the lender insists on the complete collateral, then negotiate to lower the interest rate further.
Charges and Benefits of Allied Account Requirements
Generally, when you borrow funds from a specific bank, they request you to open a savings account with the bank, so that the money can be routed through that account itself. Hence, if the bank requires you to do so, check for charges applied and other benefits that come with it.
Terms and Conditions Governing Loans
Before you sign any documents, make sure to read all the terms and conditions of both the lenders. Some lenders include certain conditions like purchasing insurance from a specific company or opening a savings account for family and self. So, it’s very important to read everything well and understand the good and bad of such terms and conditions.
Most banks and lenders come with many frills and offers attached to attract customers. Insurance and credit cards are some of the offers that top the list. Before going in for any of these offers, think about it properly and ask yourself if you really need them. Make sure to ask for information about the different terms and conditions about these offers before you purchase them as you wouldn’t want to wake up to surprises later.
Do not get carried away with certain benefits or interest rates that are not giving you large benefits. Switch over to another lender or bank only if you are really benefiting from an all-round perspective.
You can read how loan transfer can reduce EMI on Home Loans by 13%.
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