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What is a Personal Loan Balance Transfer?

By Finserv MARKETS - Jul 26,2019
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Personal Loan Balance Transfer

The concept of a balance transfer was first introduced with credit cards to transfer high-interest debt from one or more cards to another card with lower interest rates, in order to save on interest as well as pay off debt faster.

The balance transfer facility is available for loans as well. Most banks and financial institutions allow you to avail the option of balance transfer on different kinds of loan, including a personal loan. Through this facility, you can transfer the outstanding principal amount of your personal loan from your current financial services provider to another institution that is offering you more attractive rates of interest. You do not need to provide any security or collateral for accessing personal loan balance transfer facility.

Benefits of Personal Loan Balance Transfer

If you are unhappy with the services of your current financial services provider, or you think you can get access to better terms on your personal loan, you can consider transferring to another lender. Here are some of the benefits of personal loan balance transfer facility:

1. Lower interest rates

The most significant benefit of a personal loan balance transfer, and the primary reason that you would choose to avail this facility, is more attractive interest rates than your current lender is offering you. A lower interest rate means you can reduce your monthly EMIs, pay off your loan faster, and thereby reduce your overall debt burden.

2. Ability to renegotiate your loan tenure

You can also choose to negotiate the tenure of your loan with your new provider. You may extend the term of your loan, which would reduce your monthly EMI burden but increase your interest burden. You can also cut the tenure short and decrease your overall interest burden.

3. Access to top-up loan facility

If you’re in need of more credit, your new lender may be able to provide you with an additional or top-up loan with attractive interest rates if you are transferring an existing loan to them.

4. Access to better terms

If you have a strong credit profile, you may also be able to get additional features and benefits from your new lender, such as a waiver on your last EMI or zero processing fee.

Eligibility Criteria for Personal Loan Balance Transfer

Just as you need to meet certain eligibility requirements to avail a personal loan from your financial services provider, you need to meet assessment criteria for a balance transfer as well. Your application will be assessed based on your credit risk and credit health. Here are some common eligibility criteria that’s applicable to most providers:

  • The outstanding loan amount has to be at least Rs 50,000 to do a balance transfer

  • A clean record of EMI payments for at least the last 12 months

  • CIBIL score as required by the bank, usually 700 or above

Check Personal Loan Eligibility

Documents Required for Personal Loan Balance Transfer

  • Identity Proof: Aadhar Card, Driving License, Voter ID, Passport, etc.
  • Address Proof: Aadhar Card, Passport, Driving License, Phone or Electricity Bill, etc.
  • PAN Card
  • Recent Loan Statement
  • Last 3 months Salary Slip
  • 2 Passport Size Photograph

Illustration of How Personal Loan Balance Transfer Affects Your Repayments

  • With a Personal Loan Balance Transfer, you can save a large amount of money in the long run. For instance, if you have availed a personal loan of Rs. 2, 50,000 for a loan term of 3 years at 20% interest rate, your EMI would Rs. 9,291. The total interest payout will be Rs. 84,472.
  • However, if you go for a Personal Loan Balance Transfer after 1 year, with a new interest rate of 14%, the principal outstanding on your loan would be Rs. 1, 76,299. A balance transfer of the outstanding amount if rounded off to Rs. 1, 80,000, your EMI will be Rs. 8,642 and your total interest payout will be Rs. 27,416.
  • For the first year, you would have already repaid Rs. 44,039, which means another Rs. 40,433 was remaining. But with a balance transfer, your total interest would be Rs. 27,416. This means you would be saving about Rs. 13,000.

How to do a Balance Transfer on Your Personal Loan?

  • You must apply for a NOC and foreclosure letter from your current lender
  • Apply for a personal loan at a new lender and submit your loan documents with complete repayment record.
  • Obtain a sanction letter and execute a new loan agreement with the new lender.
  • Take disbursement from the new lender through cheque/ demand draft in favor of the existing lender and deposit the same with the current financial institution.
  • On receiving the outstanding loan, your existing lender will cancel all the cheques and ECS and close your loan account.

Factors to be considered while availing a personal loan balance transfer

  • The difference in interest rate of the existing lender and new lender
  • Your credit score
  • Additional charges levied by your new lender
  • Calculate the total savings

Before you apply for a personal loan balance transfer, you must read the terms and conditions set by the new lender carefully. This will help you avoid any inconvenience in the later stage.

FAQs on Short Term Personal Loan

1. Are there any costs involved in doing a balance transfer of personal loans?

Ans: When availing the personal loan balance transfer facility, you may have to bear the following costs:

  • Foreclosure charges – Varies from lender to lender
  • Processing Fees – Charged by the new lender

Any other charges like stamp duty, documentation charges, etc.

2. Do all banks offer personal loan balance transfer?

Ans: A majority of lenders offer the facility of personal loan balance transfer. However, you should check with your lender regarding this facility by visiting their nearest branches.

3. How much time does it take for balance transfer to happen?

Ans: The time taken depends on the banks or lenders that process the balance transfer request. The entire process should ideally not take more than 8 days.

Things to keep in mind when considering a Personal Loan Balance Transfer

You should carefully evaluate your balance transfer decision on various parameters. Here’s a few things you should consider:

  • Compare the various choices you have on offer and identify which option is offering you the best terms and the lowest rates. Since lowering the interest burden is likely to be your primary motivation, it is important that you evaluate the rates that different lenders can offer you.

  • Do your calculations on the terms that your new lender is offering you. You can use a free online personal loan balance transfer calculator to figure out the exact interest payable and compare how much you’re going to be saving in comparison to your existing loan terms.

  • Keep in mind the costs you may incur in transferring your loan balance and if you are comfortable with them. Your existing lender may levy a charge for the foreclosure of your personal loan, and your new lender is likely to charge a processing fee as well. Keep a lookout for any hidden charges. Take these costs into consideration when you’re evaluating an offer from a new lender.

If you’re unhappy with your current lender, keep a look-out for other providers who can offer you better terms and offer the balance transfer facility. The Bajaj Finserv personal loan can offer you attractive rates of interest if you’re looking to take out a fresh loan. Offered on Finserv MARKETS, the Bajaj Finserv Personal Loan can be customized to meet your unique requirements. You can avail a collateral free-loan for up to Rs 25 lakh with instant approval and disbursal. You can also use the personal loan EMI calculator, available for free on the Finserv MARKETS website, to check exactly how much interest you have to pay based on your loan amount and tenure.

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, insurance, investment and an exclusive EMI store, all under one roof – anytime, anywhere!

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522