When managing an existing personal loan becomes difficult, you begin to search for ways to reduce the outstanding amount of the debt. One easy and preferred way to do this is to get a personal loan balance transfer. Balance transfer means transferring your current personal loan at a comparatively lower interest rate and with new terms and conditions. This way, you can significantly reduce your monthly EMIs. However, before you do this, you need to know how a loan balance transfer works. In this article, we will highlight all the important aspects of the balance transfer facility and explain why it might be beneficial for you. Suppose you have taken a personal loan of Rs. 5 Lac for 4 years at an interest rate of 15%, you have to pay Rs.13, 915 as an EMI every month. After a few months, you come to know that another financial institution is offering an easy personal loan at 13% interest rate. Obviously, it is a great opportunity for you to transfer your loan to reduce your monthly EMI by availing another offer at lower interest rate. The reduction of 2% interest rate will bring down your monthly EMI to Rs. 13, 414 and you will save Rs. 501 every month. Benefits of Balance Transfer A Balance Transfer benefits individuals in following three ways: 1. Lower Interest rate If you are reeling under the pressure of a high amount EMI, transferring your loan to another financial institute at a comparatively lower interest rate can give you some relief. However, you should do the exact calculations before you opt for it. You should also consider the tenure, processing fees and other charges of the balance transfer. 2. Reduction in Tenure Depending on the terms of the Balance Transfer, you may get the same or a marginally reduced loan tenure. A reduced loan tenure is a good news for you as this means you would get debt free a few months earlier. It is a great relief if you have opted for a long-term repayment period while availing a personal loan. 3. Balance Transfer May Improve Your Credit Score Under favorable situations, a balance transfer can help you boost your credit score. Since credit transactions affect your score, you can increase your credit score by a few points leading to more credit options for you in future. However, in many cases, credit score decreases after the balance transfer, so it totally depends on your case and the new offer you are going to avail. Before you opt for the Balance Transfer, you should study the new loan offer thoroughly to make sure that it is beneficial for you. A mistake from your side may land you into a debt trap so you need to be careful. Find out the terms and charges of the new Personal Loan When you transfer the loan amount from existing loan to a new one, the lock-in period of the loan will be reset and you would be bound to a new service provider for a certain period of time. So you need to know all the terms and charges that would be levied upon you and compare them against your existing loan. If you find the terms and conditions of the new loan beneficial, only then opt for the Balance Transfer. Furthermore, you should keep in mind that if you close down your old credit account and open a new one, it may affect your credit score. While you may cut down the interest rate by availing a low-interest personal loan offer, you have to pay the processing fee which is 1 to 2% of the loan amount depending on the service provider. Moreover, you also have to pay other charges as per the terms of the new loan. Conclusion In short, you should weigh the pros and cons of the entire deal and if you feel that you will save money, then certainly it is a good option for you. Moreover, financial experts believe that balance transfer is a beneficial move in the long term as it may improve your credit score and finances.
Courtesy By: Internet
Date: 2018-10-16 15:26:49