Know The Savings & Cost Incurred From Balance Transfer of Your Personal Loan
December 12, 2017

A Personal Loan is an easy and convenient method of obtaining financial assistance at the time of need. Having taken a Personal Loan, timely payment of the monthly installments is essential.

Keeping a good track record and maintaining a sufficient Credit Score gives one an option of applying for the Balance Transfer of your current Personal Loan.

There are Numerous Advantages of the Balance Transfer man oeuvre such as

  • A reduced rate of interest.
  • A monthly installment that suits your budget.
  • An increased loan amount if required.
  • Chance to apply for an additional loan.

If the motive for Balance Transfer is to achieve a saving with the lower rate of interest be aware of all the financial aspects explained herewith.

The Rate of Interest offered for a Balance Transfer

To attract prime customers, most banks offer minimal rates of interest for a Balance Transfer.

The rack rates of a personal loan for most banks start from 14% on reducing balance basis and can go as high up to 22%.

Current offers for a Personal Loan Balance Transfer have rates of interest starting from 11.29% onwards, or a reduction of ROI of 2% to 3% from the ongoing rate.

These Reduced Rates are Offered Only For The Balance Transfer programme

These are especially attractive for customers, working with non listed companies (or a company that is not on the ‘Preferred List’ of any bank), who have taken personal loans at the normal rack rate.

By affecting a Balance Transfer of your personal loan, the current balance of the loan amount will be paid back by the bank offering the Balance Transfer and a new EMI will be inducted as per the lowered rate of interest.

Given below is an illustration to show the affect of reduced rate of interest after the Balance Transfer, which immediately gives the benefit of a lowered EMI.

Original Personal Loan Details  Balance Transfer affected after 6 months
Personal loan amount 100000 Principal Loan Amount Balance 84098.48
Rate  of Interest 16% Rate of Interest offered for Balance Transfer 11.69%
Tenure 36 months Tenure 36 months
EMI 3515.70 Reduced EMI post Balance Transfer 2780.84

Pre Closure Fees

The ‘Pre-Closure Clause’ is a part of all agreements signed between the applicant and the loan issuing bank. It refers to liberty of the customer to pay back the loan amount and close the personal loan as and when he desires.

The Pre closure clause consists of:

  • Lock in Period – This is the minimum time for which the personal loan must be continued
  • Pre-Closure Penalty – Is the penalty the bank may apply towards the closure of the Personal Loan before the stipulated tenure

It is prudent to check the pre-closure charges and time period applicable to one’s self when signing the disbursal agreement along with other charges applicable.

The penalty amount for pre closure could range from 0% to 6% of the principal amount yet to be paid

While applying for the Balance Transfer of the personal loan, the penalty amount can be built into the new loan amount applied, to make it payable conveniently.

Nevertheless the cost of pre-closure charges will have to be incurred for the Balance Transfer.

Quick Tip: If the pre-closure charge is more than or equal to the reduction of rate of interest, it may not be worth the while to opt for a Balance Transfer.

The Processing Fees

The processing fees are a onetime charge applicable as file charges for processing of a personal loan.

The processing fees amount may range from NIL to 2.5% as per the policy of the concerned bank.

Having already paid a fee of 2% for achieving a personal loan, an additional charge for Balance Transfer of the same personal loan may seem excessive.

So look for a bank offering the Balance Transfer of at the lowest fee: starting from a standard amount of Rs 1499/- (the maximum being 1% of the principal balance)

The advantage here is that – in case you are looking for a top up to your existing loan, the processing fees applicable will be the same as for the balance transfer amount.

A Reduced monthly EMI with the change of Personal loan tenure

The Personal Loan tenure is the stipulated time with in which the amount is to be returned to the lending bank in equated monthly instalments.

Personal loan tenures could range from 12 months to 60 months.

The tenure applicable is decided by the credit authority when sanctioning the loan.

The amount appended, the rate of interest applicable together with the tenure is responsible for the calculation of the monthly instalment instated.

If the payment of the EMI is not affordable then it is best to apply for Balance Transfer of your Personal Loan for a longer tenure.

By opting for a Balance Transfer the loan amount will then be calculated with the principal loan amount balance, the new rate of interest and the fresh tenure.

Please check illustration as below:

100000 36 months 16% 3515.7 12
71803 48 months 11.49% 1873

Balance Transfer of a Personal Loan with an additional loan amount.

The personal loan Balance Transfer mechanism is most advantageous when an additional loan amount is taken along with the balance transfer of the existing Personal Loan.

The additional loan amount which is applied for is added to the principal balance of the existing loan amount and a new personal loan is generated.

The rate of interest applicable to the entire loan amount will be as per the offer for the Balance Transfer i.e. 11.49%.

With the benefit of a reduced rate of Interest also comes a discount in the other charges, processing fees.

Thus the Balance Transfer Top Up is like the icing on the cake.

In Conclusion

With the Balance Transfer of a personal loan an applicant gets a chance to re-invent her/his Personal Loan as per the best terms and conditions prevailing.

We at yourloansdvisors are well conversant with all aspects of the Balance Transfer programme and offer our customers assistance about the finer nuances of the same

Keeping in mind their best personal interests we help applicants to know what are the best deals available and make an individual presentation to them as to the complete financial implications of the Balance Transfer of their personal loan.

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