Assume a borrower X obtained a personal loan from a financial institution called ABC and paid hefty EMIs every month for a year. Now, faced with new financial commitments, X cannot afford to service the loan with ease. How can he/she reduce their financial burden?
In such a case, borrower X can avail a personal loan balance transfer and switch to a lender XYZ, who not only offers lower interest rates but also, better loan terms and services. That way, X can enjoy the reduced interest rate and save more on the EMI outlay.
Put simply, a balance transfer is a type of loan facility which allows borrowers to move debts from one lender to another, mainly for lower interest rates and better loan terms.
But when does a PL balance transfermake sense? Here are the top scenarios.
To secure a lower interest rate
Your EMI amount mainly comprises of two components – principal amount + interest. Thus, if personal loan interest rateshave dropped by more than 1% over your loan tenure, a loan balance transfer can be a lucrative choice to lower your EMI burden remarkably.
Especially if you are in the first half of your tenure, you can switch to save more on the interest component. And consequently, increase your monthly savings as well.
For better loan features
On the contrary, if your monthly income has increased or your expenditures have reduced, you can do a balance transfer to secure better loan features – lower interest rate, customer service, top-up facility, and more.
For instance, you can switch to a new lender to avail a shorter tenure and cut down the overall cost of the debt. In such a case, however, make sure to use a personal loan EMI calculator to estimate your new EMI amount before you finalise the switch.
To procure additional funds
In addition to a lowerinterest rate, a balance transfer also allows you to secure additional funds. If your credit health has been satisfactory, you can easily avail a top-up loan facility to borrow extra money or increase the loan tenure to reduce the EMI payments on the previous amount. In this manner, you can save money on the monthly outgo comfortably.
Besides, the eligibility criteria for balance transfers are usually the same as the personal loan eligibility criteria, such as:
- Applicant must be between 22-58 years old
- Applicant must earn at least Rs. 15,000 monthly
- Applicant must have a minimum of one-year work experience
Additional Read: How much Personal Loan Can I Get on My Salary?
Also, do remember a balance transfer typically comes with additional expenses like a processing fee and a foreclosure fee. But if the cost of a balance transfer is more than what you will save on the EMIs, best not to make the switch. To avail the best loan features, you must choose a lender wisely.
At Tata Capital, we offer lucrative terms on a personal loan, for self-employed and salaried individuals. Get bespoke finance solutions with a minimal documentation process by getting in touch with us today!