Things to Look Out For When Transferring a Personal Loan
A balance transfer allows you to move your current outstanding debt to a lower interest credit facility. As a result, you can repay the current liability while saving on the interest cost in the long term.
This is an excellent choice if you are running high outstanding debt or benefit from a lower interest rate. Here are four benefits of transferring your exceptional loan to another lender.
- Reduce your interest cost
A common reason you may transfer the outstanding personal loan from your existing lender to another institution is a lower interest rate. This may reduce your equated monthly installment (EMI). However, if a lower EMI impacts the total outflow over a longer duration, a loan transfer may not be beneficial. If there is only a marginal drop in the EMI, retaining the loan with your existing lender is advisable.
2. Debt consolidation
If you have multiple credit card balances and a personal loan, consider consolidating the entire debt to a single account. This makes it easier for you to manage your whole outstanding debt. You are assured of not missing an EMI payment, and keeping track of the loan account becomes simpler.
3. Improved services
If you are not satisfied with the customer service provided by your existing lender, you may consider a balance transfer. The new lender may be able to deliver better services, which makes it more convenient.
4. Top-up facility
In some cases, the new lender may provide you with a top-up facility when you transfer the existing loan balance. This allows you to avail of a higher amount, which may be used for any purpose.
However, before you decide to transfer the balance loan amount to another lender, here are four things you need to consider.
5. Processing fees
Before you apply for a personal loan balance transfer, you must check the applicable one-time processing fees. This is often levied by the new lender and will increase the effective interest rate on the balance transfer. In most cases, lenders set a certain percentage of the outstanding balance being transferred as the processing fee.
6. Terms and conditions
Before you sign the loan transfer documents, you must understand all the applicable terms and conditions. You must check the terms and conditions for both your existing lender and the new financial institution. Moreover, ensure your current lender provides all the documents required for a hassle-free procedure.
7. Additional benefits
Some lenders may offer additional benefits, such as free credit card or accident insurance coverage when you transfer your loan balance. You must not move the loan only because of the added benefits. It is recommended you analyze if you require these additional benefits before you move your loan.
Applying for a balance transfer to take advantage of lower personal loan interest rates is tempting. However, you must evaluate your requirements and understand the pros and cons of this option before deciding. You must comprehend all the long-term implications of your decision and ensure the new loan will not be costlier. Most importantly, make sure that you can make timely repayments to avoid any negative repercussions or face financial difficulty.