How Does Personal Loan Balance Transfer Work?

Updated on: 14 Dec 2021 // 28 min read // Personal Loans
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A Balance Transfer option is available on your Personal Loan to help you choose better loan deals and interest rates. This is one of the most widely used options to reduce the outgoing towards EMIs and other charges levied by the bank.

In simple terms, a Balance Transfer allows you to transfer the outstanding loan amount from one bank to another at a lower rate of interest. This process is quite simple and gives the customer more flexibility in terms of the loan plan that he or she chooses.

Here is everything that you need to know about Personal Loan Balance Transfer.

What is a Balance Transfer?

Customers have the option of making a Personal Loan Balance Transfer from the existing bank to any other bank or NBFC. This is usually done when one bank is offering a lower rate of interest on the loan. As a result, the total interest paid towards the loan is reduced. The outstanding loan amount can be transferred in a few simple steps.

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It is easier to transfer Personal Loans as there are no collaterals involved. So there is no requirement to change the lien on the assets provided as security. There are a few basic charges that are levied by the new bank/ NBFC to enable a Balance Transfer. The charges incurred with the most popular banks, such as IDFC First Personal Loan and other, are stamp duty charges on the loan agreement, processing fees if any and a standard balance transfer fee.

Why is Personal Loan Balance Transfer Useful?

Choosing a Personal Loan Balance Transfer gives you several benefits, as mentioned below:

1. The Interest Rate is Lowered

Although customers do a lot of research when applying for a loan, the chances are that he or she may find a better deal or may come across a new loan plan after the current one has been approved. You can transfer the outstanding balance to a new bank so that these new interest rates are applicable. This not only reduces the burden of paying EMIs every month, but it also reduces the total interest paid towards the loan through the tenure.

2. You Can Increase The Tenure Of The Loan

The repayment tenure offered on Personal Loans is usually up to 60 months. The limit, however, may vary from one bank to another. You can choose a bank with a longer repayment tenure to reduce the monthly EMI. Customers also have the option of negotiating the repayment tenure with the new banking or finance institute to extend the term or even decrease it as required. This is one aspect of the loan that you need to consider carefully. Increasing the loan tenure will reduce your EMI. However, in the long run, you will be paying a higher amount towards the interest with a longer loan tenure.

3. Better Loan Features

There are several other attractive features that another bank or NBFC may provide. For instance, the current loan plan may not allow part payments towards a loan while a new loan plan may include the clause. There are other features such as zero prepayment fees, waivers on EMIs, and more that you can enjoy with a new banking institution. These features can help you manage your loan better and also allow you to save more on your loan.

4. Enjoy Top Up Facilities

Sometimes, you may require additional funds despite the existing Personal Loan. This requirement can be fulfilled using a Top Up facility. However, not all banks provide a Top Up on the Personal Loan. Even if you have the facility, you may be able to find a loan plan that offers a better Top Up amount at a lower interest rate. It is a good idea to compare the Top Up Plans before you make a Balance Transfer.

When you choose a Top Up facility, the outstanding amount is repaid automatically to the previous lender, and the new loan amount including the outstanding and the Top-Up amount is credited to the loan account of the borrower.

5. Enjoy Better Services

If you are dissatisfied with the customer service provided by your current lender, then you can transfer your outstanding balance to another bank.

Eligibility Criteria for Balance Transfer

Whether you choose IDBI First Personal Loan or any other loan plan to transfer your current outstanding balance, you need to fulfill certain eligibility criteria:

  • The past EMI record should be clean.

  • You have to make a minimum number of payments towards the EMI as required by your current lender to initiate the balance transfer.

  • You must have the necessary income as per the guidelines of the banking institution that you choose to transfer your balance to.

  • With some banks, you need to have a minimum outstanding loan amount to enable personal loan balance transfer. This amount is usually Rs.50000.

  • You must have other loans or Credit Cards that are in good standing if required by the new lender that you choose to transfer the outstanding balance to.

How to Transfer Balance to Another Bank?

Once you have checked the loan plan available and the costs involved with a balance transfer, follow these steps to transfer your balance from one bank to another:

  • Obtain a NOC and a foreclosure letter from your current loan provider.

  • Apply for the new loan and submit the necessary documents along with a repayment record for the current loan.

  • Get the new sanction letter and loan agreement.

  • Once the loan is disbursed, deposit a cheque or DD for the current outstanding amount with your existing lender.

  • Once the outstanding amount is received, the current lender will cancel ECS or Cheques and will close the loan account.

Documents Required

You need to submit the following documents for Personal Loan Balance Transfer:

For Salaried Individuals

  • Duly filled balance transfer form and passport sized photograph.

  • Valid ID Proof
  • Age Proof
  • PAN Card Copy
  • Address Proof
  • Bank Statement for the last 6 months

  • Salary Slip for the last 3 months

  • Statement of the current Personal Loan account

For Self-Employed Individuals

  • Duly filled Personal Loan transfer form with a passport sized photos

  • Valid ID proof
  • Age Proof
  • Address Proof
  • TAN Card
  • Balance Sheet for the last 3 years

  • Profit and Loss Statement for the business

  • Last 6 months bank statements of the individual as well as the business.

  • Statement of the existing Personal Loan account.

Also Read: Can I Transfer My Personal Loan to Another Bank to Get a Low-Interest Rate?

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