If you are paying your EMIs for an existing personal loan and you get a call from another bank offering a chance to transfer your loan for lower interest, what do you do? Is it ok to accept the deal right away? Are there any hidden implications? To get all the answers read through this ArthaYantra post.
What Is Balance Transfer?
A balance transfer is where part of the debt owed to one lender is transferred to another, usually to save money with low-interest rates.
Why Do People Prefer Balance Transfer?
A balance transfer is preferred to reduce the existing interest amount on the existing loan. The loan with high-interest rate can be transferred to another lender for the one with a lesser interest rate.
People also prefer balance transfer if they are not satisfied with the services of the existing bank, like levying hidden or extra charges without proper intimation.
While opting for a balance transfer, some even ask for an increase in the loan amount to get additional money as the balance gets transferred.
Whatever be your reason, ensure that you are going with the right offer for the balance transfer of your personal loan. Check for the essentials before deciding.
What To Consider Before Going For Balance Transfer?
Before you make a decision, look into different factors, not just the interest rate. Below are the major factors to be considered before transferring your personal loan.
1. Calculate the total EMI amount you would be paying to the new bank. Even if you are offered a lower EMI, calculate the amount you end up paying by the end of the loan period. Opting for a longer duration increases the total amount to be paid. Pay a bigger EMI for a shorter loan tenure rather than lower EMI for a longer tenure to clear the personal loan quickly and paying less on interest.
2. Look for the pre-closure penalty, if any. In the case of balance transfer of a personal loan, 1% to 3% of the principal amount that is being transferred would be charged by the new lender. Additionally, foreclosure or pre-payment costs may also be charged. So, you are paying the fees twice. Consider all these extra charges while calculating the overall amount to be paid to the new lender.
3. Understand all the terms and conditions before signing for the balance transfer. Check for unfavorable terms, else you may end up with an unpleasant surprise.
In conclusion, the balance transfer is a very good chance to lower the interest rate and save more money. But take a well-informed decision before availing the same, based on your current financial status, the period of EMIs, and capacity to pay the EMIs, etc.
A thorough financial planning helps take many right financial decisions. For more advice on money management, approach online fiduciary-like ArthaYantra and create a complete financial plan after considering your current and expected financial status.