A personal loan transfer is also known as refinancing or balance transfer from one bank to another. Most individuals opt for this option to avail the benefits of lower interest rate in the market. Usually, the existing borrower does not get the benefits of lower interest rate even after the rate cuts by RBI. Hence it is better to transfer the balance amount of loan from one bank to another where lower interest rates are prevalent. There are several benefits of switching loans from one bank to another which are as follows:-
First and foremost if the existing bank does not agree to reduce the interest rate even after RBI rate cuts and the EMI amount remains the same then in such cases it is always better to switch to banks which offer less interest rates and reduced EMI’s or longer duration for repayment. Usually the interest rate on personal loan is very high and continuing with the same interest rates can drain out a lot of your savings. Therefore it is always advisable to transfer the balance amount to banks offering lesser interest rate at an early stage to repay lesser EMI.
Some banks charge minimal or zero processing fees on the personal loan. This is an added advantage for an individual as he saves the money on the processing fee. Usually banks charge 0.5% - 1% of the total loan amount sanctioned towards processing fee which is a substantial amount and if waived off can a great relief for the borrower.
There are some banks who will not ask for several documents while refinancing the loan. They will take into consideration the refinancing with minimal documents depending on his history of repayments. Regular repayments are always welcome and the individuals do not have to submit lot of documents as proof. This saves time for an individual from running from one office to another to collect the necessary documents.
Most of the banks provide standing instruction facility for repayment during refinancing. It is an easy and convenient method to pay EMI and the payment date is not missed adding more interest to the principal amount. Eg. Suppose an individual’s repayment date is 1st of every month then he can set a standing instruction in his account for the amount which needs to be paid to the bank and automatically every month this amount will be debited from his account and credited to the loan account. In this case he will never be a defaulter.
Sometimes loan top-ups are required to meet money requirements. However if the existing bank is not ready to extend the top-up amount then in such cases the borrower can look for a different lender who can sanction the required finance. If at any time the borrower is not happy with the bank’s services and accessibility then the borrower can prompt a change to a bank with better services.
Some banks charge prepayment penalty of 2% - 5% of the principal outstanding amount of the loan at the time of refinance. Hence while transferring the loan amount one should check with the new lender on the terms and conditions of prepayment. All individuals try for prepayment of loan as it is a method to get the loan amount settled quickly before the tenure gets completed. There are banks which waive off the prepayment charges depending on the credibility of the buyer.
Last but not the least during refinancing, the individuals may intimate the bank that they want to repay EMI through a credit card. In such cases banks check for the credibility of the customer based on his credit score.