Recent reports by CRIF indicate a rising trend in personal loan application among individuals belonging to the middle-income group. In the financial year 2020, nearly 69% of loans were disbursed by NBFCs to applicants earning below Rs.3 lakh. While the loan amount can be availed without hassle, borrowers belonging to this segment have to be judicious with their repayment planning, to avoid the risk of defaults.
A high-interest rate can definitely pose a problem in this regard. Further, unfavourable repayment terms like additional charges can also increase a borrower’s liability to quite an extent.
When facing similar circumstances, a borrower can opt for a personal loan balance transfer to start saving efficiently.
What is a personal loan balance transfer?
A personal loan balance transfer is a facility to transfer one’s outstanding principal balance from an existing lender to a new one. It allows borrowers to avail a suitable interest rate against their loan and reap the benefits of repo rate cuts offered by the RBI.
Borrowers must, however, remember that this transfer proves most beneficial during the initial repayment tenure when the interest component is higher. To initiate the process, an interested applicant needs to visit the preferred NBFCs website and click on the outstanding balance transfer option.
What are the benefits of a personal loan balance transfer?
If a borrower is unhappy with the current financial institution’s services and interest, they can opt for this facility. Some of the benefits of a personal loan balance transfer are-
1.Better interest rate–
The best benefit an individual can reap through this feature is availing a low-interest personal loan without hassle. By transferring the outstanding balance, one can save more on interest payment and find a better balance between expenditure and savings.
For instance, a borrower availing a personal loan of Rs.3,50,000 at a 20% interest rate for 3 years, would pay an EMI Rs.13,007. By refinancing, he/she can bring down the interest to 15%, thereby saving more.
2. Top-up loan feature–
Many borrowers might find the amount disbursed against a personal loan insufficient to meet their requirements. To fulfil the same, they avail top-up loans or borrow additional funds during loan balance transfer. A borrower can switch financial institutions to find a suitable lender offering lucrative deals and a better interest rate.
3. Associated charges–
While a balance transfer allows borrowers to avail lower interest rates, they can also be levied with a charge to avail this facility. One should, thus, be careful to ensure they do not end up spending more than they save while availing a lower personal loan interest rate through balance transfer.
A borrower must also keep the five important documents required while applying for a personal loan handy during refinancing. This makes the process more streamlined.
4. Flexibility of tenure–
Personal loan balance transfer offers negotiation power to borrowers. They can easily ask for a longer tenure, which helps to reduce the monthly EMI outgo. Nonetheless, it is always more beneficial to opt for a shorter tenure, since it allows for increased savings on interest payments.
Apart from these benefits, a Bajaj Finserv Personal Loan balance transfer allows individuals to avail the facility without incurring additional charges. This NBFC also extends pre-approved offers on financial products like personal loans, credit cards, business loans, etc. that helps streamline the application process. Check your pre-approved offer today by entering your name and number.
Refinancing a loan requires understanding how to manage personal loan EMI repayment efficiently and enjoy the ease of repayments. It facilitates accelerated savings and makes availing these advances much more affordable.
The balance transfer facility allows borrowers to shift their existing personal loans to a new lender who comparatively provides a lower rate of interest. Here, the outstanding principal is moved for better terms, attractive features, extended tenure and improved services. However, such a financial decision must be taken after considerable evaluation of pros and cons.
What to keep in mind before availing a balance transfer loan?
- A nominal drop-in interest rate can impact substantially on loan EMIs. So, make sure the new lender offers a lower rate than your existing one. Ideally, the difference should be over 1% to enjoy substantial savings. Know how to avail better interest rates on an unsecured loan.
- A personal loan balance transfer may attract certain charges from both lenders. You need to make a cost assessment as the total cost of switching should not exceed your expected savings on the interest payable.
- As per amortisation schedule, EMI outflow is more towards interest payment during the 1st half of repayment period. A loan balance transfer, thus, gives good savings if you avail it early into the tenure. Suppose your personal loan incurs a 14% rate of interest p.a. and has a 4 years’ tenure. In the initial 2 years, over 72% payment will go towards the interests. Shifting the credit to a new lender then makes it gainful.
- Changes in your expenditure and income in 2020 may require a revision in loan terms as well. If your current lender refuses to adjust, a personal loan balance transfer can allow you to negotiate for tenure change, prepayment and flexible terms. Maintaining a healthy CIBIL score keeps you on the beneficial side here.
- When you transfer a personal loan, new terms and conditions are applicable. Also, there are several fees and charges levied on a loan. So, read the policy thoroughly for charges, prepayment conditions, etc. before shifting.
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