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Personal Loan Balance Transfer

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Personal Loan Balance Transfer

Introduction

The Personal Loan Balance Transfer (PLBT) facility offered by lenders enables existing personal loan borrowers from other banks and Non-Banking Financial Companies (NBFCs) to transfer their ongoing personal loans at lower interest rates. This can be an excellent way to reduce the financial burden of high-interest loans, thereby saving money on interest payments over time.

What is a Personal Loan Balance Transfer?

A Personal Loan Balance Transfer (PLBT) involves transferring the outstanding balance of an existing personal loan from one lender to another, typically to benefit from a lower interest rate. This process does not require any collateral or security to be submitted with the new lender. However, borrowers must pay nominal charges, including foreclosure charges and loan transferring charges to their existing lender. Additionally, the new lender may impose processing fees, stamp duty, and other charges typically associated with a fresh personal loan application.

Key Features and Benefits of Personal Loan Balance Transfer

Lower Interest Rates

One of the primary advantages of opting for a PLBT is the possibility of securing a lower interest rate compared to the existing loan. This reduction in interest rate can lead to substantial savings over the loan tenure.

Longer Repayment Tenure

Transferring a personal loan can also provide the opportunity to extend the repayment tenure beyond the residual tenure of the existing loan. While a longer tenure reduces the monthly EMI burden, it may result in a higher overall interest cost.

Availability of Top-up Loans

Many lenders offer top-up personal loans to borrowers who transfer their existing personal loans. This can be beneficial for borrowers who require additional funds but are unable to avail top-up loans from their current lender or are being charged higher interest rates for them.

Eligibility Criteria for Personal Loan Balance Transfer

To qualify for a personal loan balance transfer, borrowers must meet certain eligibility criteria, which generally include:

Age: Minimum 21 years and maximum 65 years.

Employment Type: Both salaried individuals and self-employed professionals.

Outstanding Loan Amount: The existing outstanding loan amount should be at least Rs. 50,000 or as defined by the lender.

Repayment History: A clean repayment history.

Work Experience: Usually, a minimum of 1 year of work experience is required, although some lenders may require longer.

Minimum Monthly Income: Rs. 15,000.

Credit Score: Usually 750 or above.

Documents Required for Personal Loan Balance Transfer

The documents required to apply for a personal loan balance transfer include:

Basic Documents

Duly signed application form with passport-size photographs.

Identity Proof (PAN card, driving license, passport, voter ID, Aadhaar Card, etc.).

Age Proof (PAN card, driving license, passport, voter ID, Aadhaar Card, etc.).

PAN Card (Mandatory).

Address Proof (Aadhaar Card, Passport, Landline Bill, Latest Electricity bill, Rent agreement, etc.).

Additional Documents for Salaried Individuals

Last 6 months' bank statement.

Salary slip for the last 3 months.

Statement of personal loan from the current lender (for the loan that needs to be transferred).

Additional Documents for Self-Employed Individuals

Business PAN card.

Business address and vintage proofs.

Last 3 years' Balance Sheet along with Profit and Loss Statement pertaining to business.

Last 6 months' bank statement of the individual and business entity.

Statement of personal loan from the current lender (details of the loan that needs to be transferred).

Process of Personal Loan Balance Transfer

The process of transferring a personal loan involves several steps:

Interest Rate Check: Begin by checking the current interest rate that you can get on your personal loan with other lenders and calculate the potential interest savings.

Cost Evaluation: Evaluate the estimated cost of the loan transfer, including various charges and fees that might be applicable.

Benefit Analysis: Consider the net benefits and decide whether to opt for the balance transfer. Shortlist a few lenders you might want to transfer your existing loan to.

Comparison of Lenders: Compare the interest rates offered by the shortlisted lenders, your loan amount eligibility, and their loan process.

Application Initiation: Once you finalize the new lender, apply for a No Objection Certificate (NOC) and foreclosure letter from your existing lender.

New Loan Application: Start the application process with the new lender. Submit the required loan documents along with the complete record of repayments.

Sanction and Agreement: Obtain a sanction letter and execute the new loan agreement with the new lender.

Disbursement and Closure: Take a disbursement of the outstanding loan amount from the new lender through cheque or demand draft in favor of the previous lender. Once the previous lender receives the outstanding loan amount, they will cancel all the cheques and ECS and close your personal loan account.

Comparison of Personal Loan Balance Transfer Offers by Various Lenders

Different lenders offer varying terms for personal loan balance transfers. Here are some examples:

HDFC Bank

Maximum Loan Amount: Up to ₹40 Lakhs.

Rate of Interest: 10.5% - 24%.

Tenure: Up to 6 years.

Processing Fee: ₹4,999.

Axis Bank

Maximum Loan Amount: Up to ₹40 Lakhs.

Rate of Interest: 10.99% - 22%.

Tenure: 1-5 years.

Processing Fee: Up to 2%.

Kotak Mahindra Bank

Maximum Loan Amount: Up to ₹40 Lakhs.

Rate of Interest: 10.99% - 36%.

Tenure: Up to 6 years.

Processing Fee: Up to 3%.

IDFC First Bank

Maximum Loan Amount: Up to ₹10 Lakhs.

Rate of Interest: 10.99% - 23.99%.

Tenure: Up to 5 years.

Processing Fee: Up to 2%.

ICICI Bank

Maximum Loan Amount: Up to ₹50 Lakhs.

Rate of Interest: 10.8% - 16.15%.

Tenure: 1-6 years.

Processing Fee: Up to 2%.

Fees and Charges Associated with Personal Loan Balance Transfer

The existing lender may charge a foreclosure fee of up to 5% on the outstanding loan amount if the original personal loan was availed of at fixed interest rates. In the case of floating interest rates, no foreclosure fee is usually charged. The new lender will charge a processing fee ranging from Rs. 500 to 4% of the outstanding loan amount during the balance transfer.

Calculation of Interest Cost Savings

To understand how a personal loan balance transfer can save on interest costs, consider the following illustration:

Original Loan Amount: Rs. 5 Lakhs.

Existing Rate of Interest: 15% p.a.

Original Repayment Tenure: 60 months.

EMI already paid: 12.

EMI to be paid: 48 months.

Existing EMI: Rs. 11,894.

Outstanding Loan Amount: Rs. 4,27,416.

New Rate of Interest: 11.50% p.a.

New Tenure: 48 months.

New EMI: Rs. 11,150.

Total Savings: Rs. 35,712.

Conclusion

A Personal Loan Balance Transfer (PLBT) can be a strategic financial move to reduce the burden of high-interest loans. By transferring your existing personal loan to a new lender offering lower interest rates, you can save significantly on interest payments. However, it is crucial to carefully evaluate the associated costs, such as processing fees, foreclosure charges, and other expenses, to ensure that the balance transfer is beneficial in the long run.

Before making a decision, compare offers from various lenders, consider your eligibility, and understand the documentation requirements. With careful planning and consideration, a personal loan balance transfer can help you achieve greater financial stability and lower your debt burden effectively.