balance transfer

Factors To Consider Before Transferring Loan Balance

As per a recent survey by the Financial Times, a majority of borrowers are opting for a loan balance transfer to avail more cost-effective options. The Money Control indicated that loan poaching by leading lenders has increased by 20% from FY 2018 to FY2019 of all mortgages sanctioned.

What is a Loan Balance Transfer?

Refinancing or loan against property balance transfer refers to a credit being taken over by a different lender by paying off the old one in full, after which a borrower starts paying the monthly installments to the new lender. 

Borrowers usually switch to new lenders to avail better rate of interest on their advances and enjoy the benefits of lower to no prepayment penalty, zero processing fees and other hosts of advantages. 

Why Make the Switch?

Servicing a loan against property at a higher rate of interest as compared to other lenders is not a smart financial decision. Therefore, switching to a new one offering lower interest rates makes more sense, especially if the borrower has a longer tenor. This loan against property balance transfer proves more beneficial as the borrower can make considerable savings on the interest outgo.

However, the actual savings depend on the outstanding loan amount, the difference between the rate of interests, remaining tenor and the cost of a balance transfer.

Factors to keep in mind when transferring loan balance

Before you apply for a loan balance transfer, keep these factors in mind beforehand –

 

  • Check Your Eligibility 

 

Before borrowers consider transferring loans to new lenders and enjoy an affordable rate of interest on the existing credit, one should be well aware of the terms and conditions provided by the new lender. 

Some financial institutions have a clause that prohibits a borrower from opting for a loan against property balance transfer. In such circumstances, the borrowers only have the option to renegotiate the loan interest rate with the current lender. 

It is also advised to switch to a new lender who offers relaxed eligibility criteria and minimal documentation for a loan balance transfer. This will ease-up the balance transfer process to a large extent.  

 

  • Check how much you are saving on interest rate

 

The primary reason behind switching is to save as much possible on the interest rate. Transferring of balance is a smart solution to attain a lower interest rate and pay a lesser amount to the new lender. 

However, before opting for a loan balance transfer, the borrower can try re-negotiating the rate of interest with the current lender based on his/her credit history and repayment track record. If the lender disagrees on negotiation, one can make a switch to a new lender that offers better interest rates along with other benefits. If you have a lower credit score, you must know how to how to increase CIBIL score for getting instant approval of loan One can apply for a loan balance transfer for its multitude of benefits and industry-first features. 

Moreover, switching to this lender can prove advantageous in the future when you obtain an advance as they provide pre-approved offers to existing customers that make availing loans hassle-free and time-saving. These offers are applicable to personal loans, business loans, home loans among numerous other financial products. You can check your pre-approved offer by providing only a few essential details like your name and phone number. 

 

  • Make sure you go for balance transfer early in the tenor  

 

Keep in mind that transferring your loan in the latter half of the tenor is of no use as the majority of the interest-led EMI payments have been made already. Hence, if you plan on switching, make sure you do it in the first half of the loan tenor when the interest outgo is the maximum. This will benefit the most as you will be saving considerably on interest payments. 

While opting for a lower loan interest rate and keeping a watch on the reset period, ensure that the new agreement allows prepayment, foreclosure along with loan balance transfer to a new lender with no penalties. Also, evaluate your decision based on the quantum of credit sanctioned, documentation formalities and the estimated period for disbursement to take place.