A loan balance transfer is a convenient way to refinance your loans for more favorable terms like the loan’s interest rates and tenure. If you’re currently paying off a loan, you inevitably receive those phone calls from various bank representatives offering to transfer the balance of your current loan.
The way the telecallers sell it to you, it definitely sounds like an attractive solution to reducing your financial burden, but before you opt for it there are a few factors you should consider.
Your financial situation
The fact that you’re considering a personal loan transfer indicates that your financial health may not be in the best condition. Therefore, analyse your current financial situation and weigh in on the situation. Do you have a good budget in place already that is working? Will this balance transfer help you or will it just be a hassle because of more paperwork?
The bank and its services
Before taking a loan balance transfer it’s reasonable to review the bank’s own standing. Ask yourself the question, why is it that they’re offering a deep discount on your current interest rates. In volatile times like we’re going through, remember that even big banks have taken serious hits with scams and mismanagement issues.
The reason people opt for a transfer is to reduce EMI, your new bank may reduce the EMI but increase the duration of payment under the disguise of offering you a ‘top-up’ on your current loan. In which case, you might end up paying more than you asked for. Review the EMI rates and tenure carefully, understanding how much you’re paying for the total loan before making a decision.
The most important aspect of a loan transfer is to review the new interest rate. If it’s substantially lower (at least by 1.5% on most loans) than your current rate then it could be worth switching to the new bank. If the interest rate doesn’t make much of a dent in your monthly payments, then you might want to reconsider the balance transfer as there are additional charges involved, which will end up pushing the total cost higher.
Other charges and fees
Speaking of additional charges, every bank has a different policy and charges. Hence, it is advisable to ask for a complete breakdown of the charges and processing fees you’ll have to pay before accepting any offer of the loan balance transfer.
The top up
Most banks that are offering you a loan balance transfer will definitely ask if you want to opt for a top up on current loan. In other words, they provide you an additional sum, increasing the amount of your loan, so you don’t have to take an additional loan for any new needs. While this might work out well for you depending on your needs, make sure you understand the total amount you will have to pay before you say yes to a top up. Make sure to check the T&C for the top up details.
Overall, there is no generalized rule for when loan balance transfers are beneficial for you and when they aren’t. Hence, don’t blindly fall for the pitch the telecaller makes, until you have done a 360 degree evaluation of the plans offered. Consider all costs involved and understand the terms and conditions before you opt for one. Remember the bank doesn’t have anything to lose but you do, so chose your options wisely.