A balance transfer for personal finance includes a borrower transferring their outstanding loan amount from one financial institution to another for availing lower interest rates on the amount.

The balance transfer procedure does not require you to put down any collateral or security deposit to you new or existing lender. However, some foreclosure charges from your previous lender and processing fee from the new one applies to the transfer.

In a personal loan balance transfer, the new financial institution pays off your pre-existing loan; however, if your personal loan includes a prepayment clause, you will be required to pay those charges. Nevertheless, considering the savings due to reduced interest rates, borrowers significantly recompense these charges.

Why do borrowers switch? 

Customers typically opt for a balance transfer to access decreased interest rates which lower their EMIs. You can receive an extended duration for loan repayment while negotiating with your new lender. Moreover, borrowers with an excellent CIBIL score and past payment record free of defaults will quickly fulfil the personal loan eligibility. They can also avail waiver on processing fee, prepayment penalties, and additional charges with proven creditworthiness.

If you are looking to change your lender for a balance transfer on personal finance, here are a few things you should keep in mind.

• Carefully assess the new offer: It is crucial to compute how much the balance transfer will cost you and how much will you save. Before opting for a different lender, assessing the potential savings is a must. Besides, you can use a personal loan balance transfer calculator to calculate.

• Extra expenses: When looking to switch, review various financial institutions and their loan balance transfer facility. Apart from interest rates and the loan tenure, don’t forget to check the processing fee and other additional costs levied by lenders.

• Terms and conditions: Before registering for a new loan, study the disclosures and the terms and conditions for personal finance (loan) balance transfer cautiously. Evaluate the agreement details and stay aware of the hidden expenses and more.

• EMI benefit: Make sure to appraise your current monthly instalments and your potential ones. Use a personal loan EMI calculator to compute your monthly payments as per your new tenure and outstanding loan amount. Besides, if you are close to ending your tenure, switching to a new lender won’t benefit your interest savings and EMI much.

• Requirement over offers: Always try to opt for a loan balance transfer when you really need your monthly instalments to go down. No matter how good the offer is, ensure that it fulfils your immediate and long-term requirements. Often lenders propose top-up loan features, free credit card benefits, insurance schemes, and savings account offers that aren’t relevant to your needs. Consider the financial necessity first and the extra perks after.

Based on borrowers’ personal loan eligibility, outstanding loan amount, chosen tenure, etc., the balance transfer will be complete. While picking a financial institution for availing personal finance (loan) balance transfer, they must empower themselves with as much information as they can. Carefully appraise the offers and the lenders to zero in the best one and save significantly on the interest payable and EMIs.