What is The Best Time to Transfer Your Personal Loan?
It is not uncommon to be bombarded daily with calls or emails from banks to get a loan or transfer your existing loans to them. Transfer of loans or “loan takeover” is basically taking a second loan to pay off the outstanding balance on the first loan. While all lenders will promise you the moon and stars to get you to transfer your loans to them, it is important to read the fine print. Only a mere mention of a lower rate of interest or monthly installment should not be the deciding factor behind this crucial decision.
In this article, we will tell you the aspects to consider while deciding to transfer your personal loan to a new lender.
- When the total amount to be repaid is lower
Transfer of personal loan makes sense only when you will end up paying lesser interest on the borrowed amount. However, a mere comparison of the rates offered by the banks is not sufficient. You need to consider a host of other factors, such as:
- Processing Fees
Majority of the lenders apply a certain percentage as processing fees while giving any loan. You would have already incurred these charges while taking the first loan. Compare the processing fees that you would need to pay during the transfer of loan as well to ascertain if you are really getting a profitable deal.
Pro-Tip: Do not hesitate to put your negotiation skills to good use. Many times, banks waive off these charges, especially when the loan amount is high.
- Security Deposit
Mostly all personal loan providers ask for a collateral deposit at the time of issuing the loan. If you have already paid off a major chunk of the loan, make sure not to give the entire collateral to the new lender. It might so happen that your collateral value is higher than the loan value in this case.
Lower monthly installment might sound like music to the ears but they also translate into a longer repayment tenure. Make sure you compare the total outflow (Higher EMI and shorter tenure viz a viz Lower EMI and longer tenure) before taking a decision.
While the other bank might be offering you a lower rate, it may have penalty charges with foreclosure. It is important to read through the pre-payment rules as these can also add up to substantial losses in the future.
- When the other bank has better customer service
It may be a wise decision to transfer your personal loan if you are not satisfied with the service of the current lender. Especially, if you get financial benefits combined with enhanced service from the other banks, it is a double benefit.
- If you are in the need of a top-up loan
It is possible that you underestimated your fund requirements in the beginning and you would require a top-up loan in addition to the existing one. If your current lender is unable or not willing to extend such facilities, you can transfer your personal loan to other banks. When taking this decision, you can take the help of numerous personal loan EMI calculators available online to ascertain your additional loan value and tenure.
So, make sure you don’t take this decision in a haste and carefully evaluate all parameters.