Personal loan balance transfer offers are popular with borrowers who are looking for a comfortable alternative to settle their high-interest loans, be it personal loans or credit card debts. Balance transfer has offered respite to those who wish to derive benefits from lower interest rates and flexible loan tenures to either spread their debt comfortably over time, get out of debt at the earliest or source additional funds for ongoing expenses.
The different benefits of an outstanding balance transfer are in fact the key reasons for borrowers to opt for such a deal. However, it is important to note that balance transfer is not suitable to everyone who has taken a personal loan.
Why use a personal loan balance transfer instead of sticking to the original personal loan?
Lucrative interest rates
Interest rates on Balance transfer loans prove advantageous if the current rate being offered is considerably lesser than the interest rate you pay on your existing personal loan. Volatile market conditions/lending regulations may have caused interest rates to drop over time or the lender may find your credit score or financial capacity worthy of discounted rates. The company you work for or even your designation could earn you a competitive interest rate when you opt to get your personal loan refinanced.
Whatever the reason, opt for personal loan balance transfer only if the interest benefits are significant even after factoring in typical expenses related to foreclosing the current loan and processing the balance transfer.
The interest rate being offered must be 1-2% lesser than the interest rate charged on your current personal loan. In order to derive maximum benefits, you’ll have to get the personal loan refinanced well before you near the half-way mark of the loan tenure as a consideration of your EMIs at this stage will still go towards settling the interesting part of the loan.
Option to Borrow More Money
You may sign up for a balance transfer if you find that your existing personal loan does not adequately cover the expenses it was intended for or you suddenly need more money for other purposes. Instead of opting for a fresh personal loan at a higher interest rate you may find it more economical to opt for a top-up loan along with balance transfer as you will be paying a lower interest rate for the entire amount. If you can afford the additional debt it would make sense to borrow more at affordable terms but still settle the debt in 60 months!
The flexibility of Loan Term
Once you sign up for a personal loan, you will need to adhere to the terms and conditions that you have agreed when you availed the loan. There is no possibility to negotiate interest rates, penalty or other charges or even ask for an extension of the loan tenure, if at all there is an unexpected dip in monthly your income or you’ve incurred other expenses in the meanwhile. Interestingly, you can’t even fully or partially settle your debts earlier than the due date if you’ve received a salary hike or promotion resulting in increased earnings.
Opting for balance transfer enables you to choose a suitable loan tenure that best fits your present financial status. You can choose the maximum tenure of 5 years, pay lower EMIs and comfortably settle the remaining part of the original loan which you had transferred or pay high EMIs and get out the debt in just 2 years.
Debt Consolidation Facility
Balance transfer helps you consolidate your active loans into a single loan that attracts significantly lower interest. It is important to remember that the maximum loan term is usually 60 months. Credit card loans are ideal candidates for debt consolidation.
If you have taken multiple high-interest loans over time and are finding it difficult to track and manage timely repayments, you will find it easier to manage one consolidated loan instead of juggling with several loans.
Check with your lender regarding the loans you wish to consolidate and accordingly negotiate the terms. Not all lenders may be open to debt consolidation.
While not really compelling reasons to opt for a balance transfer, there are several promotional benefits that lenders usually bundle with refinancing offers. Zero processing fees for the new loan, waiving of the last EMI or a few EMIs at specific occasions if your repayment track record is perfect, free credit cards, insurance products at competitive rates are some of the perks that may be a part of the deal. These may come in handy when comparing balance transfer offers from different sources.
Balance transfer loan terms must be fully honored, without any defaults or delays in EMI payments. As you are offered a lower interest rate and the choice of tenure, the lender will not usually support bulk repayments or foreclosure of the loan earlier than the agreed tenure. Given the hefty foreclosure charges, it is advisable that you don’t switch lenders without a compelling reason to shoulder additional expenses related to balance transfer.
Unless you are paying an interest which is way above the trending market rates, do not get tempted by lower rates highlighted in such offers as the actual financial benefit may be far less than the costs of refinancing. One another point to note that with additional time available and lower EMIs you could get complacent and at times pay more interest over the loan tenure.
Getting out of debt at the earliest not only ensures that you diligently track your finances but also earn high credit scores in the process.