Personal Loan: This one decision will reduce your EMI by 100%, you will also get these benefits..

When it comes to personal loan balance transfer, most people think of only one thing - 'low interest rate and cheap EMI'. This is indeed the biggest advantage of balance transfer, but this is not the whole picture. It is a smart financial tool whose benefits go far beyond just reducing EMI.

Many people take personal loans at high interest rates and then keep repaying them for years, without knowing that they have a better option. If you, too, are troubled by the expensive EMI of your loan, then a balance transfer can prove to be a game-changer for you. You can get many benefits at once with this one decision.

1. Low interest rate and small EMI

Let's talk about the first and biggest benefit. Suppose you took a personal loan of Rs 5 lakh 2 years ago at an interest rate of 14% for 5 years. Now your credit score has improved, and another bank is offering you to transfer the same loan at a rate of 11%. In such a situation, your EMI will automatically reduce.

Old EMI (at 14%): About Rs 11,634

New EMI (at 11%): About Rs 10,871.

Here you are directly saving Rs 763 every month. This becomes a big saving in the remaining loan period. This is the main reason why people transfer the loan.

2. Opportunity to change the loan repayment period

Many times, while taking a loan, we choose a longer tenure to keep the EMI low. Later, when our income increases, we feel that the loan should be repaid soon. Balance transfer gives you this opportunity. You can reduce the loan repayment period by negotiating with the new bank. On the contrary, if the burden of the existing EMI is too much on you, then you can reduce the EMI further by increasing the tenure a little. This gives you flexibility according to your current financial situation.

3. Top-up loan facility
This is a hidden treasure of balance transfer. Suppose you have a loan outstanding of Rs 3 lakh and you suddenly need Rs 2 lakh more. Now you will either take a new expensive personal loan or borrow money from someone. But at the time of balance transfer, the new bank may offer you a top-up loan on the existing loan, considering your good record.

This means the bank will repay your old loan of Rs 3 lakh and give you an additional Rs 2 lakh. Now your total loan will be Rs 5 lakh, on which you will have to pay only one EMI, that too probably at a lower interest rate than the old one. This is the easiest and cheapest way to meet a new emergency need.

4. Better customer service and features
Are you upset with your current bank's customer care, outdated mobile app or difficult online process? Many times, people want to change their bank only because of poor service. Balance transfer gives you a chance to go to a bank that offers better digital facilities, a transparent process, and good customer service.

5. The power to merge multiple debts
If you have a personal loan, two credit card bills, and a small consumer loan, paying four different EMIs and bills every month can be a headache. Balance transfers allow you to consolidate all these debts into one place. You can take a larger personal loan and repay all your smaller and higher debts (especially credit card debts with a 35-40% interest rate). This will leave you with just one EMI, which will be easier to manage, and your overall interest cost will also be significantly reduced.

Frequently Asked Questions (FAQs)

1. What is a personal loan balance transfer?

Answer: It is a process where you transfer your existing high-priced personal loan to another bank with a lower interest rate and better terms. The new bank repays your old loan, and you pay your EMIs to the new bank.

2. Will transferring the loan hurt my CIBIL score?

Ans: When you apply, there may be a slight and temporary drop in your score due to an enquiry. But in the long run, when you pay EMIs on time at a lower interest rate, it helps improve your score.

3. What documents are required for a loan transfer?

Ans: Usually, you need KYC documents (PAN, Aadhaar), salary slips, bank statements, and documents related to existing loans such as the loan agreement and the foreclosure letter.

4. When is the right time to transfer a loan?

Ans: The best time to transfer a loan is during the initial tenure of the loan, as at that time most of your EMI is going towards interest. If you have only a few months left for your loan to end, it may not be a profitable deal.

5. Are there any hidden charges in a balance transfer?

Ans: There are two main charges that you need to keep in mind. First, your old bank may charge a foreclosure fee for closing the loan before the time. Second, the new bank may charge you a processing fee. Make sure to calculate both these charges before taking any decision.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.