Using Balance Transfer to Trim Loan EMI

If you have taken a loan, the chances are that the EMIs consume a considerable part of your salary that you pay each month before you can even put it in your pocket. Apart from having less money to spend, this also means that your savings will get affected. It is a bad cycle, and there are many people caught in it. Unlike what people might think, it isn't something that you have no control over. You can use the facility of balance transfer which is offered by many popular banks to detach yourself from this cycle by paying lesser EMIs and saving more money.

Balance Transfer is a process of paying off a loan by taking another loan at a cheaper rate. Through this process, you can save money on the monthly installments. This system is useful if the high-interest rate paid on loans each month take a toll on your daily life.

Balance transfer could be even more beneficial in case of home loans because the loan tenure is way longer than a personal loan. With a slight change in the interest rate, if you shift the amount, you can easily save up a huge amount.

Benefits of Balance Transfer

Following is a list of benefits of availing balance transfer facility for various types of loans:

• You can take advantage of existing low rates if you apply for a balance transfer at any point of your loan tenure.
• Balance Transfer decreases your monthly EMI by lowering your interest rate.
• You can avail a highly attractive interest rate since rival banks offer balance transfer on the original loan.
• When the current rates are low, you should go for balance transfer and make the most of market conditions.
• You might be able to negotiate terms and conditions with the lender bank before choosing to transfer the loan balance and mutually reach a conclusion that is agreeable to both the parties. You can opt to transfer the balance to a lender bank which provides a lower rate of interest and offers better services to its customers.
• Lenders will analyze the current market value of your asset so, you might become eligible for a top-up loan.

When Should You Go for a Balance Transfer?

• Individuals can prefer to transfer their outstanding debt when there is an obvious difference in the rates.
• When the borrower wants to lessen the burden of the loan EMI, he or she can choose to transfer his/her loan balance.
• When an individual needs a top-up loan to meet his/her urgent credit needs, a balance transfer is one of the most popular solutions.

How to transfer your loan balance?

• Check the current rate of interest on a quarterly/half-yearly basis or you can check the interest rate in the official website of RBI.
• Analyze the dynamics of the chosen loan scheme.
• Compare the rates, features of the loan and term and condition of the companies that are offering the loan
• Explore the options to compare the rate of interest that you have chosen.
• Submit the necessary documents to a competing lender bank to know about your eligibility.
• To save time, apply for a balance transfer with all the required documents to the chosen lender.
• The lending organization usually takes 2-3 weeks to send a confirmation regarding the borrower's proposal.
• Next, you will be required to notify your existing lender and receive a letter specifying the outstanding loan amount.
• The current lender will pay the existing lender the outstanding amount to obtain the necessary documents of the loan. This method can take up to 2 weeks. After that, the borrower will be required to pay the EMI every month according to the current scheme.
• The loan is closed after 10-15 days by the original lender and the necessary documents are transferered to the new lender bank.

What all to watch out for:

The Balance Transfer scheme offered by several banks sounds great, but there are many pitfalls that anyone must avoid to fall into. Here are some points that you must remember before transferring your outstanding loan to a different bank.

• Ask your current loan provider itself if they are ready to level the rate that their rival bank is offering to you.
• Make sure that your estimation is accurate and the new bank offer can decrease your loan installment without raising the loan tenure.
• Make sure that you're completely aware of all the hidden charges applicable on the balance transfer, especially about the processing fee. Make sure that no other bank is willing to provide you the loan with similar features at a lower processing fee.
• Ensure that the interest rate that is offered by the new lender isn't a teaser loan rate. Some banks offer teaser loan rates to attract a higher number of customers in a short span of time.
• You shouldn't transfer the outstanding amount at the end of the tenure of your loan repayment. The difference in such cases is very marginal and not worth the transaction cost involved in the process.
• Compare and analyze the amount that you're paying in the form of EMI in both the cases.
• If you have already paid a chunk of the loan amount, then you must offer a lesser valued collateral than the original collateral. If the new lender insists on the original collateral, then you must ask the lender to decrease the interest rate.
• Go through the terms and conditions thoroughly before transferring your loan amount.