Personal loan balance transfer is a process by which a borrower transfers an outstanding principal of a personal loan from one lender to another in order to benefit from better terms such as a lower interest rate on the outstanding loan. Many NBFCs (non-banking financial companies) and banks now provide the option of a balance transfer on personal loans. However, one needs to carefully evaluate the balance transfer offer and choose the one that helps reduce the cost of borrowing.
Personal loan balance transfer does not require any security or collateral to be provided by the borrower. Some nominal charges that may be involved in personal loan balance transfer are foreclosure charges that may be levied by the current lender, processing fees that may be charged by the new lender and stamp duty on loan agreement, if applicable. The following are some key factors to consider when evaluating a balance transfer offer on personal loans.
Features of Personal Loan Balance Transfer
Personal loan balance transfer comes with an array of features. Some of them are given below:
- Lower Rate of Interest: One of the primary features or benefits of a personal loan balance transfer is that it often offers a better/lower rate of interest. The new lender will usually offer a lower rate of interest on the loan transfer. This results in the borrower’s interest burden being reduced through the reduction in EMIs.
- Longer Repayment Tenure: Balance transfer also often enables you renegotiate the loan terms such as getting the new lender to extend your loan repayment tenure. This will reduce the monthly EMI burden. However, it may result in higher total interest payout. Some lenders may also offer you the option to reduce your repayment tenure. Though opting for a short tenure may result in higher monthly EMIs, it may help to reduce the total interest payout of the loan.
- Avail Additional Features: Depending on your past payment record and changing income dynamics, you may get an offer from other lenders for better loan features such as waiver of last EMI, zero processing fees, lower interest rates, etc. The personal loan balance transfer facility can thus not only reduce the personal loan interest burden, but it may also get the borrower a loan with better features.
- Top-up Loan Facility: Many banks allow a top-up loan facility along with personal loan balance transfer. In case the borrower is in need of more credit, one can also consider going for a balance transfer. Many lenders or financial institutions can offer top-up personal loans at a competitive and relatively lower rate of interest, in case one is ready to transfer the outstanding personal loan from the current lender to a different lender of personal loans. There are many lenders who offer personal loan balance transfer and top-up personal loans with minimal documentation and without any hassle. In case of top-up loans, outstanding loan balance is directly paid to the previous lender and the fresh amount of loan will be credited to the borrower’s account.
- Better Services: Personal loan balance transfer also often enables you to enjoy better services in case you are not satisfied with the services offered by the current lender or financial institution. With the balance transfer facility, one can choose to go with a lender who can provide better services as compared to the current one.
You need to meet certain key eligibility criteria to avail the personal loan balance transfer facility. Eligibility for balance transfer on personal loans is mainly dependent on the borrower’s capacity to repay and his/her credit worthiness or credit health. The personal loan eligibility calculator can also help potential borrowers know their eligibility to transfer their outstanding personal loan balance. Some common criteria that hold true for balance transfer of persona loans to most banks include:
- Current outstanding loan amount has to be at least Rs. 50,000 to initiate the balance transfer process.
- Past record of loan EMI (equated monthly installment) payment has to be clean. At least the previous twelve installment payouts of the existing loan will be checked.
- One or more additional loans/credit cards in good standing as per the requirement of the new lender or financial institution.
- CIBIL Score as required by the bank, generally 700 or above.
Documents Required for Balance Transfer
Some common documents that the borrower may be required to submit in case he/she wishes to opt for a balance transfer are as follows:
- Duly signed application form for personal loan balance transfer along with passport size photograph
- 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 copy (Mandatory)
- Address Proof (Aadhaar Card/Passport/ Landline Bill/ Latest Electricity bill/Rent agreement etc)
Some of the key documents that are specific to salaried and self-employed individuals are as follows:
For Salaried Individuals:
- Last 6 months bank statement
- Salary slip for last 3 months
- Statement of personal loan from current lender (for the loan that needs to be transferred)
For Self Employed Individuals:
- TAN Card/GST number
- 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 current lender (details of the loan that need to be transferred)
Based on the documents submitted, the lending bank will carry out a credit-worthiness assessment process as per their applicable criteria. The personal loan balance transfer will be carried out only after the assessment of credit risk has been made and the prospective borrower clears the assessment criteria.
Process of Personal Loan Balance Transfer
Personal loan balance transfer process usually involves the following steps:
- Check the current interest rate that you can get on your personal loan with other lenders and calculate the interest savings.
- Evaluate the estimated cost of the loan transfer taking into account various charges and fees that might be applicable.
- 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.
- Compare the interest rates offered by the shortlisted lenders, your loan amount eligibility and their loan process.
- 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.
- Start the application process with the new lender. Submit the loan documents along with the complete record of repayments.
- Get a sanction letter and execute the new loan agreement with the new lender.
- 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.
- Once the previous lender receives the outstanding loan amount, they will cancel all the cheques and ECS and close your personal loan account.
Balance Transfer Charges
The charges involved in transferring the outstanding amount of your existing personal loan to a new lender may vary depending upon your existing bank and the new bank. Two important charges involved in personal loan balance transfer are the foreclosure charges that you need to pay to your existing lender and the processing fees that you need to pay to the new lender.
- Foreclosure Charges: Foreclosure charges need to be paid to the existing lender for taking over of your personal loan. The rate may vary with different lenders from nil up to 4% of the principal outstanding. However, some lenders might charge a flat fee or a higher charge depending on the loan agreement.
- Processing Fees: These need to be paid to the new lender for the processing of your personal loan application (on transfer) and may range from a flat fee of Rs. 500 to 4% of the loan amount.
Calculation of Personal Loan Balance Transfer
You can use any of the free personal loan balance transfer calculators available online to compute the monthly EMIs and the total interest payable in case you opt for a balance transfer. You can compare the interest payable on your existing loan with the interest payable in case you opt for a balance transfer.
Illustration of Transferring Balance of Personal Loan
The following table gives you an illustration of how a personal loan balance transfer could help you save on the total interest payable:
|Particulars||Existing Loan||New Loan|
|Outstanding Balance||Rs. 3 lakh||Rs. 3 lakh|
|Interest Rate (p.a.)||15%||11%|
|Remaining Loan Tenure (months)||36||36|
|Monthly EMI Payable||Rs. 10,400||Rs. 9,822|
|Difference in EMI Payable||Rs. 578|
|Total Interest Payable||Rs. 74,386||Rs. 53,578|
|Total Savings||Rs. 20,808|
Note: The above stated values are for indicative purposes only. Actual values, calculation and interest rates may differ.
List of Providers Offering Personal Loan Balance Transfer
Some top banks and NBFCs offering the balance transfer facility on personal loans are given below:
|Banks and NBFCs||Balance Transfer Interest Rate|
|ICICI Bank||11.25% onwards|
|HDFC Bank||10.75% onwards|
|Axis Bank||12% onwards|
|Kotak Mahindra Bank||10.75% onwards|
|Indusind Bank||11% onwards|
|State Bank of India||10.35% onwards|
|Bank of Baroda||11.40% onwards|
|Bajaj Finserv||12.99% onwards|
|Tata Capital||10.99% onwards|
|Fullerton India||12% onwards|
|Muthoot Finance||14.50% onwards|
Note: These personal loan balance transfer interest rates are for indicative purposes only. Actual interest rates and charges may vary.
Given below are some key aspects that one should keep in mind with respect to personal loan balance transfer:
- When opting for a balance transfer on your personal loan, always compare the different options available. You can visit an online financial marketplace to do so and choose a lender who offers the best terms and lowest interest rate on balance transfer since this will help you reduce the interest burden substantially.
- Using the loan terms that your new lender is offering you, you can compute the exact interest payable by making use of one of the free personal loan balance transfer calculators available online. This will help you to know how much you will be saving in comparison to your existing personal loan.
- When you consider transferring your personal loan balance to a particular lender keep in mind the additional costs that you may have to incur. These may include the foreclosure charges that you will have to pay to your existing lender and the processing fee that may be charged by the new lender. All these costs are to be considered while analyzing the benefit of the balance transfer facility.
- Before you sign the personal loan balance transfer agreement make sure that you read the fine print carefully to be aware of the loan terms. It is essential to go through the loan transfer agreement details thoroughly to be aware of key information and any hidden charges that might be applied to the transfer.
- One should take the personal loan balance transfer facility only if it suits his/her unique requirement. Top-up loans and many other features of balance transfer facility may not sometimes suit the requirement of all customers. In such cases, consider the offer carefully including the overall benefit and long term implication of the balance transfer offer.
Q1. Who can avail the personal loan balance transfer facility?
Any borrower who has an existing personal loan on which he/she has paid at least 12 EMIs regularly is eligible to transfer the outstanding balance to another lender, provided that they meet the lender’s eligibility criteria.
Q2. When should one opt for the balance transfer on personal loans?
In case your lender is charging a higher rate of interest on your personal loan as compared to other lenders in the market, you can consider the option of opting for a balance transfer of your personal loan to another lender. A personal loan balance transfer can also be opted to avail better terms on your personal loan such as top-up facility, longer repayment tenure, etc.
Q3. What is the repayment tenure in case I opt for the balance transfer of my personal loan?
The repayment tenure can range between 12 to 60 months.
Q4. What are the costs involved in balance transfer?
The following fees and charges may have to be paid by the borrower at the time of transferring the outstanding balance of their existing personal loan:
-Foreclosure charges or prepayment fee to the existing bank.
-Processing fees to the new lender.
-Stamp duty on loan agreement (in case applicable).
Q5. Can I avail more money by opting for a balance transfer?
Yes, several lenders offer customers the option to avail a top-up on the existing persona; loan when opting for a balance transfer. Top-up enables customers to borrow more money over and above their existing loan. Applying for a top-up along with balance transfer lets you avail more funds and more time to repay it at lower than earlier interest rates.