Personal Loan Balance Transfer

Transfer your existing personal loan to another lender to get the reduced interest rate and better terms. Pay low EMIs by opting for a personal loan balance transfer facility.

What is a Personal Loan Balance Transfer?

A Personal Loan Balance Transfer is transferring your ongoing Personal Loan from the existing lender to a new lender. Even a difference of 0.50% to 1% in interest rate will reduce the EMI considerably, depending upon the outstanding balance of the existing loan.

To avail this facility, you have to request for a foreclosure statement with the existing lender. On receiving the foreclosure letter, apply for personal loan with the new lender. If the loan is approved, the new lender will take over the outstanding balance from the existing lender by paying off the amount and you will be paying the EMI to the new lender henceforth.

Key Features of Personal Loan Balance Transfer

There are various reasons for you to opt for a Personal Loan Balance Transfer including:

  • Reduced rate of interest: You can enjoy lower interest rate with a balance transfer. You will generally choose a bank that offers the best interest rate thus reducing the interest burden on the loan. With this, the EMI will also be reduced, giving you a respite from the month on month financial stress.
  • Longer tenure: While switching to a new lender you can negotiate on repayment terms and opt for a longer tenure. This will help reduce payout towards EMIs and will lower your financial stress.
  • Improved CIBIL score: Due to financial constraints, if at some point in time you feel that you will not be able to manage EMI payment on time, it is advised to consider the balance transfer. You would have paid the earlier EMIs on time and now not paying the instalment on time will only end up in tarnishing your credit score. Instead, you can go for a balance transfer which will increase the credit repayment cycle and will help to manage your high credit score.
  • Top-up loan: If you have an existing Personal Loan and need of an additional loan, you can approach another bank that is offering a loan at a better rate of interest with a top-up. This is the best feature of balance transfer when you are in need of additional funds along with a reduction in interest cost.

Personal Loan Balance Transfer Eligibility

The eligibility of an applicant for a Personal Loan Balance Transfer is mainly assessed by income stability and repayment capacity. Apart from this, there are other common eligibility criteria that have to be satisfied to qualify for the Personal Loan Balance Transfer.

  • The minimum outstanding loan balance should be 50,000 to initiate the loan balance transfer.
  • The EMIs for the current loan should have been paid regularly and on time. At least 12 EMIs of the current loan should have been serviced regularly.
  • The credit score of the applicant should be good. The minimum score required will be above 700.

Documents Required for Personal Loan Balance Transfer

For Salaried employees

  • Completely filled and signed application form
  • Two coloured recent passport-sized photographs of the applicant
  • ITR of the last 2 years
  • Identity Proof: Passport/ Voter ID/ Driving License/ PAN Card
  • Address Proof: Registered Rent Agreement/ Utility Bill of at least 3 months/ Leave and License/ Passport.
  • Income Proof: Last 6 months; salary slip, and Form 16 of 2 years
  • Bank statement for the last 6 months of salary account

For Self-Employed

  • Completely filled and signed application form
  • Two coloured recent passport-sized photographs of the applicant
  • ITR of the last 2 years
  • Identity Proof: Passport/ Voter ID/ Driving License/ PAN Card
  • Address Proof: Registered Rent Agreement/ Utility Bill of at least 3 months/ Leave and License/ Passport.
  • Business Proof: GST Returns or Company's incorporation details
  • Business Address Proof: Business accounts, balance sheets showing profit & loss statements certified by a CA
  • The proof of the business's existence a copy of the partnership deed and business profile.

Along with the above documents, a foreclosure letter from the existing bank indicating the outstanding balance in the loan account should also be submitted.

Savings on Balance Transfer

If you are paying a high rate of interest for your existing loan and feel the EMI burden is not affordable, then it is recommended to look for options where you can get a Personal Loan at a lower rate. Generally, the interest rate on Personal Loan ranges from 10.99% to 20%. Look for an option where you will be getting a considerably lower rate of interest.

It is better to make the decision of switching to a new lender who offers a better rate in the early stages itself since the outgo towards the interest out of the monthly EMI is higher in the initial months. If you switch over to a new lender in the early stages of your availing the loan, saving towards the interest outgo will be higher. Before deciding the new lender, you should calculate the savings on balance transfer using the Personal Loan balance calculator.

The Personal Loan Balance Transfer Calculator will have a list of lenders who will offer the Personal Loan Balance Transfer facility along with their interest and other charges of each lender. With this, you will be able to gauge the extent of ultimate savings after considering the pre-payment charges of the existing lender and the processing fee of the new lender. On doing the exercise, if you feel that the Personal Loan Balance Transfer will be a lucrative one, then go for it.

Illustration Personal Loan Balance Transfer

Following is an illustration of how you can save on the total payable interest by opting for a personal loan balance transfer:

DetailsExisting Personal LoanNew Personal Loan
Outstanding balance to be transferredRs. 5 LakhsRs. 5 Lakhs
Rate of interest15% p.a.10.50% p.a.
Remaining tenureRs. 3 yearsRs. 3 years
Payable EMIRs. 17,333Rs. 16,251
Difference in EMIRs. 1,082
Total payable interest Rs. 1,23,976Rs. 85,044
Total savingRs. 38,932

Personal Loan Balance Transfer Process

If at any point in time, you feel that you are paying a very high rate of interest for the Personal Loan with your existing lender, you try to negotiate the rate. Considering your track record and credit score, the existing lender may reset your interest. In case that is not possible then you should consider switching over to a new lender.

  • Check the interest rates offered by different banks for a Personal Loan. Compare the interest rates, features, and terms and conditions for the product.
  • Compare the processing charges of different lenders. If the loan quantum is high then even a small difference in the processing charges will make a great difference.
  • Explore the options to justify the interest rate that you have chosen
  • Submit the required documents to the new lender to check your eligibility
  • Once eligibility is check is done, apply for a loan balance transfer along with the required documents.
  • The new lender will take approximately 2 to 3 weeks to convey the credit decision
  • If the loan is approved, you will have to give a request for foreclosure statement to the existing letter. The existing lender will give a foreclosure letter mentioning the outstanding balance in the loan account, if the balance transfer is accepted.
  • The new lender will take over the balance outstanding by remitting the outstanding balance to the existing lender. Thereafter, you will have to pay the loan EMI to the new lender.

Charges Associated with the Personal Loan Balance Transfer

Personal Loan Balance Transfer involves the following charges:

  • Pre-payment charges: Levied by the existing bank
  • Processing fees and documentation charges: Levied by the bank that takes over the outstanding balance.

Banks normally collect a charge for the closure of a Personal Loan before the end of the tenure in order to discourage closure of the loans before maturity. The charge ranges from 2% to 5% on the outstanding principal along with an applicable tax on the day of pre-payment which may be huge when the loan quantum involved is high.

The bank that takes over the loan balance will charge an originating charge or processing charge ranging from 0.50% to 2% on the loan amount along with an applicable tax which also may be considerably high if the loan quantum is high.

While doing the cost-benefit analysis to understand how much you stand to gain, even these charges have to be considered, and if the gain is substantial then it is advisable to go for a loan balance transfer.

Kotak Personal Loan Festival Offer 

Ahead of festival season, Kotak Mahindra Bank has announced Rs 999 flat processing fee offer on Personal Loans. Customers can avail of instant approvals on personal loan applications up to Rs. 20 Lakhs at lowest interest rate starting at 10.25% p.a for maximum of 5 years. 

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Personal Loan Balance Transfer FAQs

✅ What is a Personal Loan Balance Transfer?

A Personal Loan Balance Transfer is the facility availed for transferring the balance outstanding of your existing Personal Loan from the existing bank to another bank or other financial institution.

✅ Is Personal Loan Balance Transfer a good idea?

Consider the charges and total associated with the transferring your existing loan to the new lender. If you are getting a low interest rate and there are minimal transfer charges, then only opt for Personal Loan Balance Transfer. It is advised to opt for this facility in the early stage of your loan repayment.

✅ How does Personal Loan Balance Transfer work?

Personal Loan Balance Transfer is required when the rate of interest charged by your existing lender is higher than the current market rate. You can negotiate the interest rate with your existing loan provider. If they deny, opt for a balance transfer to another lender who is offering the low interest rate loan. The new lender will take over the balance loan amount by paying off the entire outstanding loan balance to the existing lender and the EMIs will be paid to the new loan provider after the balance transfer.

✅ Can the Personal Loan balance also be transferred to a Credit Card?

You can transfer the balance of your Personal Loan to a Credit Card, but you will still own the debt and considering the interest cost, you may not gain any significant benefit. Instead, over a period of time, you will end up paying a higher interest cost. So, though it is possible to transfer the loan balance to Credit card, it is not such a lucrative idea.

✅ What are the eligibility factors for a Personal Loan Balance Transfer?

In addition to the parameters required to be eligible for a Personal Loan, the following eligibility factors should be met to qualify for the balance transfer of your Personal Loan:

  • The minimum outstanding balance should be 50,000 to avail Personal Loan Balance Transfer
  • The EMIs for the current Personal Loan should have been paid regularly and timely. At least 12 EMIs of the existing loan should have been serviced regularly.
  • The applicant should have a good credit score (minimum 700 or above)

✅ How to transfer personal loan from one bank to another?

The process to transfer personal loan from one bank to another begins by placing a request for a foreclosure statement with the existing lender. The existing lender will give a foreclosure letter with the current loan details, if the foreclosure is accepted.

On receiving the foreclosure letter, apply for a loan with the new lender. If the loan is approved, the new lender will take over the outstanding balance from the existing lender by paying off the amount and you will be paying the EMI to the new lender henceforth.

✅ What are charges on the transfer of loan?

Personal Loan Balance Transfer involves the following charges:

  • Prepayment charges: Levied by the existing bank and varies between 2% to 5% of the outstanding principal amount.
  • Processing fees: Levied by the bank that takes over the outstanding balance and varies between 0.50% to 2% of the loan amount (that is to be transfered) plus applicable taxes.