Personal Loan: This is called hitting multiple targets with one arrow! This one decision will reduce EMI by 100%, and benefit you.

Personal loan balance transfer is not just shifting the loan from one bank to another. It is a strategic decision that can improve your financial health in many ways. It not only helps you save money every month, but also gives better control over the loan terms, access to additional funds and the facility to manage multiple loans. Know its many benefits.

Whenever it comes to personal loan balance transfer, only one thing comes to the mind of most people - 'low interest rate and affordable EMI'. It is true that this is the biggest advantage of balance transfer, but this is not the whole picture. It is a smart financial tool whose benefits are far more than just reducing EMI.

Many people take personal loans at high interest rates and then keep repaying it for years, without knowing that they have a better option. If you are also troubled by the expensive EMI of your personal loan, then balance transfer can prove to be a game-changer for you. With this one decision, you can get many benefits simultaneously.

1. Low interest rate and small EMI

Let's talk about the first and biggest benefit. Suppose you took a personal loan of Rs 5 lakh 2 years ago at an interest rate of 14% for 5 years. Now your credit score has become good and another bank is offering you to transfer the same loan at the rate of 11%. In such a situation, your EMI will automatically decrease.

Old EMI (at 14%): About Rs 11,634

New EMI (at 11%): About Rs 10,871.

Here you are directly saving Rs 763 every month. This becomes a big saving in the remaining period of the loan. This is the main reason for which people transfer the loan.

2. Opportunity to change the loan repayment period

Many times while taking a loan, we choose a longer tenure to keep the EMI low. Later, when our income increases, we feel that the loan should be repaid soon. Balance transfer gives you this opportunity. You can reduce the loan repayment period by negotiating with the new bank. On the contrary, if the burden of the existing EMI is too much on you, then you can reduce the EMI further by increasing the tenure a little. This gives you flexibility according to your current financial situation.

3. Top-up loan facility

This is a hidden treasure of balance transfer. Suppose you have a loan outstanding of Rs 3 lakh and you suddenly need Rs 2 lakh more. Now you will either take a new expensive personal loan or borrow it from someone. But at the time of balance transfer, the new bank can offer you a top-up loan on the existing loan itself, considering your good record.

This means, the bank will repay your old loan of Rs 3 lakh and give you an additional Rs 2 lakh. Now your total loan will be Rs 5 lakh, on which you will have to pay only one EMI, that too probably at a lower interest rate than the old one. This is the easiest and cheapest way to meet a new emergency need.

4. Better customer service and features

Are you upset with your current bank's customer care, outdated mobile app or difficult online process? Many times people want to change their bank just because of poor service. Balance transfer gives you an opportunity to move to a bank that offers better digital facilities, transparent process and good customer service.

5. Power to merge multiple debts

If you have a personal loan, two credit card bills and a small consumer loan, then paying four different EMIs and bills every month can be a headache. Through balance transfer, you can consolidate all these debts at one place. You can pay off all your small and expensive debts (especially credit card debt of 35-40%) by taking a big personal loan. This will result in you paying just one EMI, which will be easier to manage and your overall interest cost will also be significantly reduced.

Frequently Asked Questions (FAQs)

1. What is a personal loan balance transfer?

Answer: It is a process in which you transfer your existing expensive personal loan to another bank at a lower interest rate and better terms. The new bank repays your old loan and you pay your EMI to the new bank.

2. Will transferring the loan hurt my CIBIL score?

Answer: When you apply, there may be a slight and temporary drop in the score due to inquiries. But in the long run, when you pay the EMI on time at a lower interest rate, it helps improve your score.

3. What documents are required for loan transfer?

Answer: Usually, you need KYC documents (PAN, Aadhaar), salary slips, bank statements, and documents related to the existing loan such as loan agreement and foreclosure letter.

4. When is the right time to transfer a loan?

Answer: The best time to transfer a loan is during the initial period of the loan, as at that time most of your EMI is going towards interest. If you have only a few months left for your loan to end, then it may not be a profitable deal.

5. Are there any hidden charges in balance transfer?

Answer: You have to take care of two main charges. First, your old bank may charge a foreclosure charge for closing the loan prematurely. Second, the new bank may charge you a processing fee. Before taking any decision, make sure to calculate both these charges.