Should You Go for Balance Transfer on a Loan?
Know why balance transfer on loans can be a great debt consolidation move
Debt consolidation is not an easy project to undertake. It requires careful planning and consideration of multiple options available to consolidate your debts. Personal loans, mortgage loans, loans against securities, top-up loans on home loans and balance transfer facility on loans are some of the popular ways you can pick on to reduce your debt burden.
Some of us think that transfer of balance facility is offered only on home loans. And we never avail of the facility. However, the truth is that Indian banks offer a balance transfer facility on most types of loans including education loans, business loans and mortgage loans and they can be beneficial in many instances.
So, here are 3 reasons why balance transfer facility on a loan can be a boon for your debt consolidation plans:
#1. Get Favourable Terms:
If you are unhappy with the loan terms offered by the existing lender bank or other lending institution, you can go for balance transfer to another bank that offers more favourable terms.
For debt consolidation, this may mean a longer or shorter repayment period, lower prepayment charges, etc. If your income has increased recently, you can transfer your loan to a new lender and negotiate a smaller repayment period (and a resulting higher EMI) to pay off your loan faster. The EMI may increase but your interest payments will be less.
#2. Better Interest Rate:
Banks offer better interest rates and other terms to new borrowers since they want to attract new business. This means a balance transfer will end up being more favourable to you in the long term. A relatively lower interest rate also directly translates into more savings since you end up paying less interest on the loan amount.
#3. Pay off Debt:
When you avail of the balance transfer facility, you can choose to get the loan amount in your bank account and pay off other debt such as credit card bills too. For home loans, a balance transfer may take up to 15 days since the documents related to the property need to be transferred and other formalities need to be completed but for other loans, it happens quickly. This means debt consolidation can be done relatively quickly if you plan it well.
A caveat here and an important point for you to note. Nationalised banks have a tendency to take more time to process an application than a private sector bank. So, if you are in a hurry, go with a private sector bank.
A Final Word
Balance transfer on loans is a win-win, in most cases, for the borrower as well as the lenders. Please factor in the processing fee, new EMI, prepayment, foreclosure charges and other terms when you shop for balance transfer on a loan.
If you want to learn more about debt consolidation or consolidation loan schemes offered by other major Indian banks, you can check out our consolidation loans page. We also share tips to help you find the best debt consolidation loan option offered by Indian banks.