If you have a personal loan with a bank and you are regular with the payments of the EMI, you must have received emails or SMSs from other banks offering you a balance transfer facility at a lower rate of interest. Many banks these days are aiming to increase their personal loan portfolio by luring customers who are diligently paying back their loans. A transfer of your loan at a lower rate of interest helps in reducing EMIs. Lower interest rate is not the only reason why you would want to switch. If you are unhappy with the services offered by your current lender you may want to end your association with it by moving to a new lender. Also if you are in need of additional funds then instead of taking a new loan you can do a balance transfer and opt for a top up loan. But before accepting the offer it is necessary that you understand the financial implications correctly. As you consider a number of factors while availing a fresh personal loan, the same applies when you decide to transfer it.
On time payment- If you are paying a high personal loan interest rate, understand that you can enjoy the benefits of a balance transfer only if you have an impeccable credit report. Banks usually offer this facility to customers who have a clean credit history and who are regular with the payment of EMIs. So if you have a string of delayed payments on the credit records then you might not be able to avail this facility.
Lock in period- Read the lock in period clause of the agreement that you signed with your lender, say HDFC personal loan. Since banks want to earn a minimum amount of interest before allowing the customer to close the loan they mention a mandatory stipulated time in the loan agreement. While some banks allow you to close the loan after paying the first EMI, others have a lock in period of 12 months. Find out the minimum number of EMIs that you need to pay before the bank will accept your request for the transfer.
Total cost of the deal-Apart from the personal loan interest rate it is necessary that you factor in the additional expenses that you need to incur when making this transaction. The new lender usually charges a processing fee ranging from 1-2% of the amount being transferred. Many banks levy a pre-closure penalty ranging from 1-6% of the outstanding loan amount if your pay off the amount before the loan tenure ends. If your bank has such a policy then consider this expense and switch only if the benefit derived from lower interest rate justifies the cost involved in the transfer.
Loan tenure– It is essential to consider the loan tenure of the new deal. If the bank offers low EMI by extending the personal loan tenure then your interest outflow will also increase. Calculate how much the new loan will cost you and compare it with the old option to determine which one is profitable.
Read the fine print- Read all the key documents, agreement and terms and conditions carefully before transferring the loan. If the bank has some hidden clauses that you overlooked initially then you might get unpleasant surprises in the future. Make sure there are no unfavourable terms and conditions because of which you have to regret taking such a decision.
Credibility- Make sure that the new bank has good reputation in the market. Opting for personal loan transfer with a renowned lender will give you some assurance that they are offering a genuine deal.
Banks will always encourage customers to do a transfer as it helps them expand their customer base. But you need to assess the offer and take a decision to switch the lender only if it suits your needs. Considering the above factors will help you take a sound decision.