Personal Loan Balance Transfer

Personal Loan Balance Transfer – A Detailed Guide

Transferring a customer’s total outstanding personal loan balance from one lender to another that offers a lower interest rate on the outstanding loan balance is known as a personal loan balance transfer. To reduce the overall amount of interest payable, carefully consider the balance transfer offers available when choosing a personal loan and select the best one.

There is no need to furnish the lender with any security or collateral during the balance transfer process for personal loans. The existing lender may impose some foreclosure charges as part of this process. Additionally, it can result in processing fees that the potential new lender may impose as well as stamp duty on the loan agreement, if applicable.

But keep in mind that not every borrower will benefit from a balance transfer. It makes more financial sense in a number of circumstances to continue with your current lender.

Benefits of Personal Loan Balance Transfer

Lower Interest Rate:

One of the key benefits of the personal loan balance transfer option is that it lowers the interest rate, which lowers your interest expense by resulting in lower EMIs. For the loan transfer, the new lender would provide a reduced interest rate. Prior to using the balance transfer option, it is, nevertheless, always preferable to assess the need, examine the offer, and compare the rates and features.

Extended Loan Tenure:

When switching from one lender to another for a personal loan, you can negotiate the loan’s tenure and have the repayment period extended or shortened to meet your needs. You may pay less in EMI each month with an extended term, but you may pay out more in interest overall. On the other hand, while the aggregate burden of interest is reduced in the case of short tenure, individual payments are larger.

Enhanced Features:

You can negotiate with lenders for better loan features like waiving the last EMI, no processing costs, cheaper interest rates, etc. depending on your history of timely repayment and current income. The ability to transfer the balance of a personal loan can improve loan features while reducing the amount of interest paid.

Avail Top-up Personal loan:

To individuals who are transferring their existing personal loans, many lenders provide top-up personal loans. Therefore, a personal loan balance transfer option would help current borrowers of personal loans who are either unable to obtain top-up personal loans or are paying higher interest rates for them.

Interest Rate of various banks for Balance Transfer of Personal Loan

Here is the list of various banks/NBFCs and their interest rates on transfer of Personal Loan from one bank to another.

Banks/NBFCsInterest Rates (per annum)
Bajaj Finserv13.00% onwards
IndusInd Bank10.49% onwards
IDFC First Bank10.49% – 23.00%
SBI9.80%-13.80%
Axis Bank10.25%  onwards
Tata Capital10.99% onwards
HDFC Bank10.50% – 21.00%
ICICI Bank10.50%  onwards
Kotak Mahindra Bank10.99% onwards

How to Transfer Personal Loan to other bank or lender

Take a look at the process outlined below if you want to transfer the balance of a personal loan:

  • Calculate interest savings and check the current interest rate for the personal loan you can obtain.
  • Analyze the projected cost of the loan transfer while accounting for any possible charges and fees.
  • Determine whether you want to transfer your loan by calculating the net advantages. Make a shortlist of new banks to which you want to transfer your current loan.
  • Review and compare their lending processes, eligibility requirements, and interest rate offerings.
  • Apply to your current bank for a NOC and foreclosure letter if you decide to move forward with the transfer.
  • When applying for a loan at the new bank, be sure to include all of your loan documentation and repayment information.
  • Obtain a letter of approval, then sign the new loan contract with the new bank.
  • Get a cheque or demand drafts in the amount of the disbursement from the new bank payable to an existing bank, and deposit it there.
  • Your current bank will close your loan account and cancel all of the cheques and ECS immediately upon receiving a loan that is past due.

Documents Required for Balance Transfer

In order to choose for a personal loan balance transfer, the borrower may need to present the following basic documents:

  • Fully completed and signed application form and two passport-size photos
  • PAN card, driving license, passport, voter ID, Aadhar card, etc. as Identity Proof & Proof of Age
  • Mandatory PAN Card copy 
  • Address proof such as an Aadhar card, passport, landline bill, most recent electricity bill, or rent agreement

The following additional documents are required for salaried and self-employed people:

For Salaried IndividualsFor Self Employed Individuals
1. Recent six-month bank statement
2. Payslip for the last three months
3. Personal loan statement from a current lender (for the loan that needs to be transferred)
1. Organization PAN card
2. Business address and historical evidence
3. Balance sheet and profit and loss statement for the last three years
4. Individual and corporate bank statements for the last six months
5. Personal loan statement from a current lender (details of the loan that need to be transferred)

Impact of Balance Transfer of Personal Loan on EMI

If you have a personal loan, you do need to think about a balance transfer at least once while the loan is still outstanding. Your interest rates will decrease as a result, enabling you to reduce the amount of interest you have to pay. 

Let’s use an example to better understand this.

Let’s say you took out a personal loan for Rs. 3 lakh with a 36-month term and an interest rate of 18%. In this scenario, your EMI (equivalent monthly installment) will be Rs. 10,845 every month and your overall interest payment throughout the loan’s term will be Rs. 90,446.

If you transfer your debt after a year and the interest rate is now 11.29 percent, your loan’s principal balance will be Rs.2,17,254 at that point. In this scenario, your EMI will be reduced to Rs. 10,115 per month, bringing your whole savings to Rs. 16,560. The table below demonstrates the same:

ParticularsLoan AmountInterest Rate (P.A.)TenureEMI
OriginalRs.3 Lakh18%36 monthsRs. 10,845
After Balance TransferRs.2,17,25411.29%24 monthsRs. 10,155

In above example

Monthly EMI Saved = Rs.690

Total Savings = Rs.16,560

FAQ:

Can you balance transfer a Personal Loan to another bank?

Yes, it is possible to do a balance transfer of your loan from the current bank/NBFC to another financial institution if you have paid 6 EMIs in the past on the loan without any default. However, the criteria for such varies from one financial institution to another.

Can I transfer my Personal Loan to any bank I wish to?

If you’ve paid all six of your loan’s EMI payments without skipping any, you can transfer your loan’s balance from your current bank or NBFC to another financial institution. However, the requirements for such vary from financial institution to financial institution.

Does Personal Loan Balance Transfer impact my credit score?

When you want to transfer the amount of a personal loan, the new lender will order your credit report to assess your creditworthiness. Because lender-initiated loan inquiries are regarded as hard inquiries, the credit bureaus will deduct a few points from your credit score for each one. Therefore, choosing the personal loan balance transfer option could result in a slight drop in your credit score. However, applying for a personal loan balance transfer with many lenders in a short period of time can cause a more significant decline in your credit score. Before choosing a balance transfer, you must carefully consider the results. To make the best choice, discuss the advantages and disadvantages of a debt transfer with your credit card provider or bank.

How long does it take to transfer a Personal Loan?

Banks’ processing times for balance transfers may vary depending on how quickly your current lender can close your loan and send you a notice of loan foreclosure. Once that has been completed, you must apply for a loan with the current lender, who will then disburse the loan amount to your account once it has been authorized. No more than 8 days should be needed to complete the process.

Can I increase the loan amount when transferring my personal loan to another bank?

Yes, a number of lenders give their clients the choice to obtain a top-up personal loan while using a personal loan balance transfer. Customers who take out a top-up personal loan can borrow additional funds on top of their current loan.

Do I need to pay extra charges for the Balance Transfer process?

The charges listed below may occur when transferring a balance of personal loan:-

1. If applicable, the existing lender may be charged foreclosure fees, which vary depending on the lender.
2. The new lender charges a processing fee.
3. Any extra expenses that the new lender may incur, such as documentation fees, stamp duty, etc.

Do I need to submit any security to the new bank while transferring my existing Personal Loan?

No, as a balance transfer is an unsecured loan, just like a personal loan, you are not needed to provide any security or collateral when applying for one.

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