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Know How A Personal Loan Balance Transfer Works

Know How A Personal Loan Balance Transfer Works?

Personal loans are unsecured financial tools that an individual can borrow from nearly every lender or NBFC. Personal loans have been designed to help people meet their immediate financial needs. Lenders evaluate factors like creditworthiness, income, employment history and account balance before approving loan applications. 

Personal loans are not secured loans, which means the lender does not hold any of your assets as collateral in case you default on your payments. If there are payment defaults, the lender is at a greater risk of losing their funds. For this reason, personal loans come at a higher interest rate than secured loans. 


Personal loans are useful for households or individuals trying to meet monetary shortages at short notice. This could include medical emergencies, higher education, travel plans or home renovation projects. 

What is Personal Loan Balance Transfer?

Personal loan transfer or personal loan balance transfer refers to a process in which customers transfer their remaining loan amount to a different lender from their original one. 


This is almost always done because the other lender is offering a lower rate of interest on this amount. Personal loan balance transfers primarily serve the purpose of saving interest on the total amount you pay. Before you opt for the balance transfer process, make sure you thoroughly evaluate the terms and conditions as well as the additional costs involved. 


If you don’t do it right, you might end up paying more than you would have. The loan transfer process doesn’t require any collateral or security either for the new lender. However, there could be loan foreclosure charges that the original lender levies. 

How Does the Personal Loan Balance Transfer Process Work?

Loan transfers work in various ways depending on your situation. If your loan has some amount left to pay, your new lender repays the existing loan. If there is a prepayment clause in your existing loan, the borrower is liable to pay those off. 


Additionally, you also must pay any processing fees that the new loan comes with. However, looking at the amount you save on the interest charged, these charges are not that high.

When is a Loan Transfer Not Recommended?

While repaying a loan, the monthly EMI comprises two parts – the principal amount and the interest payable. In the initial phase of the loan tenure, the interest makes up a larger part of the EMI than the principal. 


So, for instance, consider you have a 5-year loan tenure that you have already repaid for three years of the five. This means most of the interest has been repaid. In such a situation, opting for a loan transfer is not too beneficial. You still need to pay the principal and the interest you are trying to avoid has already been paid. 


Another critical factor to consider is that opting for a loan transfer will incur several charges. The two biggest ones are loan processing fees that you will pay to the new lender and loan foreclosure charges that you must pay the original lender. In such situations, calculate your total savings first before opting for a loan transfer. 

Eligibility Criteria for Personal Loan Balance Transfer:

Opting for a personal loan balance transfer is as good as taking a new loan and is similar to debt consolidation. Like during your original loan application process, you can only opt for a loan transfer if the eligibility criteria deem it fit. This means reconsideration of factors like your income, age and credit score. 


Besides this, two other conditions for loan transfer are:

  • Your outstanding loan should be Rs. 50,000 or higher.
  • Your current personal loan repayment history should be clean, with no payment defaults.


A Personal loan balance transfer is an effective way of reducing your loan expense and interest burden. Compare current personal loan interest rates before opting for the transfer. Also, consult with both the lending parties to understand how beneficial the transfer will be.


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