Personal Loan Balance Transfer

Benefits of Personal Loan Balance Transfer

A personal loan balance transfer offers multiple benefits, ranging from reduced interest rates to improved loan terms, helping borrowers manage their finances more efficiently. A few of these benefits are discussed as below:

• Lower Interest Rate: One of the primary objectives of exercising personal loan balance transfer is to avail lower interest rate and thereby, reduce one’s overall interest cost.
• Longer Repayment Tenure: Exercising personal loan balance transfer facility can also help a borrower to opt for a longer tenure than the residual loan tenure of his existing personal loan. A longer tenure will reduce then his monthly EMI burden. However, this would lead to a higher interest cost for the borrower.
• Access to Additional Funds: Many lenders offer top-up personal loans to those transferring their existing personal loans. Thus, personal loan balance transfer facility would benefit existing personal loan borrowers unable to avail top-up personal loans or being charged higher interest rates for it.

Eligibility Criteria for Personal Loan Balance Transfer

The eligibility criteria for personal loan balance transfer may vary depending on the lender’s credit risk policies and the applicant’s credit profile. Below are the general eligibility criteria for personal loan balance transfer considered by most lenders:

• Age: 21-65 years
• Credit Score: Preferably 750 or above
• Repayment Track Record: Clean (No missed EMIs for at least past 1 year)
• Employment Type: Salaried individuals and self-employed professionals
• Minimum Monthly Income: Rs. 15,000
• Employment Stability: Usually 1 year of work experience is required with some lenders requiring longer work experience
• Existing outstanding loan amount should be at least Rs. 50,000 or defined by the lender

Documents Required for Transferring Personal Loan

Basic documents that the borrower may be required to submit in case he/she wishes to opt for a personal loan balance transfer are as follows:

Common Documents:

• Duly signed application form with passport size photographs
• Identity Proof (PAN card/driving license/passport/voter ID/Aadhaar Card, etc.)
• Age Proof (PAN card/driving license/passport/voter ID/Aadhaar Card, etc.)
• PAN Card (Mandatory)
• Address Proof (Aadhaar Card/Passport/ Landline Bill/ Latest Electricity bill/Rent agreement, etc.)

Additional documents specified to salaried and self-employed individuals are as follows:

For Salaried Individuals:

• Last 6 months’ bank statement
• Salary slips for last 3 months
• Statement of personal loan from a current lender (for the loan that needs to be transferred)

For Self-employed Individuals:

• Business PAN card
• Business address and vintage proofs
• Last 3 years’ Balance sheet along with profit and loss statement pertaining to business
• Last 6 months’ bank statement of individual and business entity
• Statement of personal loan from a current lender (details of the loan that need to be transferred)

Step-by-Step Process to Transfer Your Personal Loan

Personal loan balance transfer process usually involves the following steps:

1. Check the current interest rate that you can get on your personal loan with other lenders and calculate the interest savings.
2. Evaluate the estimated cost of the loan transfer taking into account various charges and fees that might be applicable.
3. Consider the net benefits and finalize whether you want to opt for the balance transfer or not. Shortlist a few lenders that you may want to transfer your existing loan to.
4. Compare the interest rates offered by the shortlisted lenders, your loan amount eligibility and their loan process.
5. After you finalize upon the new lender and decide to go ahead with the transfer, apply for a NOC (No Objection Certificate) and foreclosure letter from your existing lender.
6. Start the application process with the new lender. Submit the loan documents along with the complete record of repayments.
7. Get a sanction letter and execute the new loan agreement with the new lender.
8. Take a disbursement (of the outstanding loan amount that you had to pay to the previous lender) from the new lender through cheque/ demand draft in favour of the earlier lender.
9. Once the previous lender receives the outstanding loan amount, they will cancel all the cheques and ECS and close your personal loan account.

Calculation of Interest Cost Savings Generated from Personal Loan Balance Transfer

The following table gives you an illustration of how a personal loan balance transfer could help you save on the total interest payable:

Factors to Consider Before Opting for a Balance Transfer

Before opting for the personal loan balance transfer option, it’s essential to evaluate the following factors to ensure that the transfer is financially beneficial:

Savings in the overall interest cost: The primary reason for opting for a personal loan balance transfer is to reduce the overall interest cost of the loan. As personal loan balance transfer requests are treated as fresh personal loan applications by lenders, they levy processing fee, administrative charges and other standard charges applicable to new personal loan applications. Additionally, borrowers may need to pay nominal charges such as foreclosure charges and transfer fees to the existing lender when opting for this facility. Therefore, it is important to factor in these costs while calculating their overall savings from the balance transfer. Transfer the loan only if the net savings in interest cost is significant enough after considering all the costs involved in doing so.

Residual tenure of the existing personal loan: Personal loan borrowers pay most of their interest component during the earlier stages of the loan tenure, leaving little scope for making interest cost savings through a loan transfer in the later stages. Therefore, unless the primary goal is to significantly reduce the EMI burden, borrowers should try to keep the tenure of their new personal loan – post balance transfer – same as the remaining tenure of their existing personal loan as opting for a longer repayment tenure would result in higher interest cost.

Renegotiating interest rates with existing lenders: As a personal loan balance transfer is considered a fresh loan application by the new lender, the borrower has to undergo the steps and processes associated with a new application, including loan evaluation. As going through all these steps again can be tedious and time-consuming for borrowers, they should first try to renegotiate the ongoing personal loan’s interest rate with the existing lender before switching. They should go ahead with the transfer option only if the existing lender refuses to match the rates offered by other lenders on their outstanding personal loan.