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Tenure mentioned: The agreement should be checked for the details of the loan tenure as agreed upon by you and the lender. Else you may have to pay a little longer than discussed. So, keep an eye out for errors while reviewing the contract. 

Availing of a personal loan is the easiest and fastest way to fill up your additional financial requirements in the shortest possible time. Since personal loans are unsecured loans, they bear a higher rate of interest. But did you know you can reduce the interest rate with the help of a loan balance transfer?

What is a balance transfer?

Personal Loan Balance Transfer is the process of transferring the total outstanding personal loan amount by the borrowers from one lender to another to take advantage of lower interest rate. In effect, it is like taking a loan to pay another loan.

This is a method in which your existing loan is transferred from one bank to another. The loan transfer is advantageous only if the second bank offers a lower rate of interest. According to Wishfin a personal finance fintech, one should opt for balance transfer if the difference in the interest rate is 4-5% or more.

A balance transfer allows the borrowers to take the advantage of competitive or low-interest rates or longer tenures. With the transfer, your cost of loan reduces. However, this can be possible only if you have a good credit history.

What are the advantages of a balance transfer?

You can avail balance transfer facility even in the midst of an existing loan. Banks offer attractive interest rates to pull the customer from the rival banks which work positively for you. If you are really thinking about this option then before transferring the balance, you can negotiate further interest rates with the bank according to your credit history.

According to personal finance expert Arnav Pandya, “ You should opt for the balance transfer only when there is a huge difference in the rate of interest and the outstanding is for longer durations, as it will reduce the overall cost of your loan amount.’’ You can also avail this option if you want to delay the payment as many banks offer a moratorium on personal loan in balance transfer option, he added.

Things to keep in mind

The balance transfer looks interesting with the fundamentals of converting expensive loans to low-interest rate loans, but it also requires some caution. Ensure that after the balance transfer, your EMI is reduced without any change in the loan term. Transfer the balance only after understanding the calculation about the processing fees and other charges.

Keep in mind that the interest rate at which the new bank is giving you a loan should not be a teaser loan. A teaser loan is any loan that offers a lower interest rate for a fixed amount of time as a purchase incentive. Otherwise, you will have to pay more interest towards the end. In both cases, the balance transfer should be done only after calculating the total loan amount.