A personal loan balance transfer is a scheme where customers can transfer their outstanding personal loan to another lender who offers a better deal. While opting for a personal loan balance transfer looks lucrative, it is necessary to carefully evaluate if it is beneficial to you. Personal loan balance transfer comes with a penalty from your existing lender and attracts processing fees from the new lender. 

How does a personal loan balance transfer work?

When you transfer your outstanding personal loan to a new lender, they will pay off your existing loan with the current lender. However, you will be liable to pay the prepayment charges if your existing loan terms have a prepayment clause in it. Calculating all costs can help determine your savings from the loan transfer, and this calculation can be quickly done using a personal loan prepayment calculator available online.

Is personal loan balance transfer a good idea?

It depends on your current financial institution’s fees while transferring the loan. However, there are several benefits of a personal loan balance transfer. 

Let’s understand:

• Lower Rate of Interest,

The most significant advantage of a loan balance transfer is that the borrower is offered lower interest rates.

• Extended Repayment Period

On transferring the loan to the new lender, one can negotiate to extend the loan repayment tenure, decreasing the monthly EMI commitment.

• Loan Top-up Facility

You can also meet your additional fund requirement at the lowest interest rates with top-up facilities offered by the new lender.

• Improved CIBIL Score

Since the loan transfer makes EMI affordable, you can repay the loan sooner and within the due date. This will drastically improve the CIBIL score.

If you plan to go ahead with the balance transfer, it is important to evaluate all the pros and cons to make an informed decision. You should also choose the lender who offers utmost transparency while providing lower interest rates.

Must Read: 5 Typical Personal Loan Requirements to Know Before Applying