Personal loans are the fastest and the most convenient form of credit today. Fast approval coupled with speedy disbursal and no collateral make it the credit instrument of choice during financial emergencies. A personal loan can also be opted for non-emergency situations where you require additional funds, such as personal loans for home renovation, financing weddings, education and sometimes even vacations. A personal loan for business is also an excellent option pursued by many entrepreneurs today for financing business operations.
A personal loan is an unsecured loan that is sanctioned without hassle and can be repaid in monthly instalments. Your easy monthly instalments (EMIs) include both principle repayments as well as the applied rate of interest. In some cases, the combination of high-interest rates and large monthly amounts may make it difficult for you to repay your loan. A good way to repay such high amounts is to transfer your personal loan to a different financial institution, one that offers a lower rate of interest. Opting for a personal loan transfer helps you pay off your existing EMIs.
However, this transfer or ‘takeover’ of a loan has to be done carefully because there can be some hidden costs and overheads. Outlined below is a sequence of some very easy steps that you can follow in order to transfer your personal loan without having to shell out more money than is required.
Make Enquiries and Calculate Total Outflow
Enquire with as many lenders as possible to get an idea about the balance transfer schemes available in the market and opt for the best possible rates among the options. A new financial institution might offer to reduce your monthly EMIs by giving you a longer tenure. This, however, increases the total amount that needs to be paid back due to the added interest which accumulates over the longer tenure.
If you are paying higher EMIs right now, compare the total amount that needs to be paid for your existing bank and the new bank. Try staying with your existing bank if your current repayment amount is favourable compared to what is available in the market. It is better to pay off your loan with higher EMI’s and save all the money you would have otherwise paid during a longer tenure with another bank.
Take into Consideration the Various Fees
To transfer your personal loan, you will need to provide all the details of your existing personal loan, such as the principal amount left, tenure completed, rate of interest, etc. The new financial institution will also ask for your repayment track record of the past 12 months before allowing a balance transfer. Take note of the processing fee, stamp duty, legal charges, valuation fee, technical charges and other allied charges that the bank you are considering would charge. Compare these consolidated charges with the benefits of the reduced interest rate to see whether a balance transfer is profitable for you.
Some banks calculate the processing fee as a percentage of the total loan amount, for some it depends upon your being either a salaried or self-employed individual, while others have a fixed amount uniform for all. In any case, this cost should be calculated and taken into consideration while comparing your existing bank with prospective banks.
In addition, your existing bank may increase the costs of account closure if it finds out that you have transferred your person loan to a different institution. This might result in the bank asking you to pay fixed interest rates instead of floating interest rates. Hence, one should take all the various fees and charges applicable into account while considering a personal loan transfer.
Submit Documents and Enquire About Allied Accounts
To transfer a personal loan, your chosen bank will ask you to submit certain necessary documents, like salary slips, bank statements, identity proof, PAN card, address proof, etc. Depending on the bank, you might also be required to open a savings account with them and route money through it. If the bank asks you to do so, enquire about any additional facilities provided with opening a savings account and the applied charges, if any.
Read the Terms & Conditions Carefully
Once your personal loan transfer application has been processed, and your case has been found to be legitimate, the bank will sanction the loan and disburse the amount. But, before you agree to taking on the new loan, be sure to read all the terms and conditions. Some banks include buying insurance from a specific company, depositing a certain amount in fixed deposits, or opening a number of saving accounts as a part of taking their loans. Such schemes end up adding further to your expenditure.
Sometimes a bank might attract customers by offering them free benefits with loans. Free credit card and personal accident insurance tops the list of offers. Before opting for these, analyse whether you actually require them and enquire about their underlying costs. An item that has been projected to be free may only be free for a certain duration and become chargeable after that. Hence, it is highly recommended that you go through all the associated terms and conditions before signing off on the personal loan transfer.
While a personal loan transfer can ease your financial burden considerably, it is always advisable to carefully look at the pros and cons that such an undertaking entails. Interest rates, repayment tenures, additional charges, and your profitability are important factors that you should analyse when opting to transfer your existing personal loan.