Having a rough time managing your finances? Are those Personal Loan instalments causing trouble? Well, you can’t go back in time to choose a better loan offer, but you sure can explore other options. Have you ever considered a balance transfer? Maybe, it’s time you did!

Life doesn’t often give you a second chance. But, with the option to opt for a balance transfer, you actually do get a second chance. A chance to move to a lower interest rate on your on your Personal Loan from the current high rate that you’re at.

But, hold on a second! We know you’re excited about it, but you can’t just opt for a balance transfer at the drop of a hat. You need to think about a lot of other stuff.

Read on to know about the entire process and then decide whether it’s the right choice for you or not.

What Is A Balance Transfer?

A Personal Loan balance transfer works exactly like a Credit Card balance transfer. You get to avail a better rate of interest and a better loan offer by transferring your loan balance.

It could mean transferring it to another Bank or switching to another loan offered by the same bank. It all depends on the availability, rules of the banks involved and, of course, your luck.

Calculate the total outflow:

 Although the new bank tries to attract you by reducing your monthly EMI and giving you a longer span to repay (increasing your tenure), you should be clear that such facilities increase the total amount you pay to the bank because the interest keeps on adding to the outstanding loan amount. If you are paying higher EMIs with your current bank, compare the total outgo for both banks and then take a decision. If you are not hard-pressed for cash, you should prefer staying with your bank, pay a larger EMI and finish off your loan as soon as possible to save all the money you would overpay, by opting for a longer tenure.

 Study the processing fees and other allied charges:

 Take into consideration the processing fee, stamp duty, legal charges, valuation fee, technical charges and other allied charges that your new bank would charge and compare it with the benefit in terms of reduced interest rates. Is there a net benefit or a net loss?

 For some banks, the processing fee is a percentage of the total loan amount, while for others, it depends upon whether you are salaried or run a business. Still, others have a fixed amount, uniform for all. If the bank calculates it on the basis of the outstanding amount, calculate it in rupee terms to find the cost. Also, your existing bank may jack up the costs of closure of accounts if it finds out that yours is a case of a takeover. One of the complainants in an online complaint forum talks about how the bank officials refused his request to charge the interest rate on floating basis and insisted for recovery on a fixed rate of interest if the customer opted for takeover. They wanted the customer to pay at fixed interest rates, much higher than the floating rates applicable.

 Collateral to the outstanding ratio:

 If you have already repaid a huge chunk of your loan, do not offer the complete original collateral to your new bank. Why would you want to give a security which is double the amount of your loan outstanding? You would use it to take a separate loan instead if the need arises. Offer your new bank a lesser amount of collateral. And if the bank still insists on the same, negotiate for lessening the interest rate further.

Charges and benefits of allied account requirements:

When you take a loan, banks generally require you to open a savings account and route your money to that account. In case it does so, find out the charges applied and the facilities provided to you. For example, a Canara Bank education loan account does not accept EMIs through net banking. HDFC net banking allows you to make NEFT only 24-hours after you have submitted the request, the first time.

You should consider such provisions and your requirements before taking the final decision. Also, if your current bank is the one where you do all your banking, you become a premium customer for them; know a lot of their staff, are well-versed with their processes and may also be given services faster than others in the queue. These softer aspects go a long way for ease of use and comfort banking and should be thought about before foregoing them.

Terms and conditions governing loans:

Before signing on the dotted line, you MUST read all terms and conditions of both banks. Some banks include buying insurance from a specific company or depositing a certain amount of fixed deposits or opening a number of saving accounts for self as well as family, etc.  Read the “terms and conditions” part of the sanction letter and understand the pros and cons of such conditions.

Other attached frills on offer:

Attracting customers by offering them frills with loans is a fad. Free credit card and personal accident insurance tops the list of offers. Before falling for these, analyse whether you really need them and ask for more information about terms and conditions governing them. A well-known friend was sold a ‘free’ credit card. He woke up the next year only to realise that the card was free only for one year. That is the extent of mis-selling being done.

Final take:

Do not fall for an interest rate, or benefit, that is only marginally better. After all, banks are in the business of lending. Why would one want to give you loans at a lower interest rate and lose profits when others in the market are earning a higher rate of interest? In your best interest, it is good to be suspicious and ask and consider all the issues mentioned above.

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