Personal loans are a very popular mode of availing easy finance. However, through personal loans are an easy finance solution with multipurpose use, their interest rates are on the higher side. Since the loans are unsecured loans, the lender faces a high probability of repayment default. Given the high default risk, interest rates are high. Moreover, interest rates also vary across different lenders. In fact, there is a wide difference in the range of interest charged by different lenders. You can find personal loans at interests starting from 10.7511.49% and going as high as 17.25% or above. Given the difference, your personal loan might be charging a higher interest than other loans available in the market. Is there any solution to lower the rate?
Yes, there is and the solution is called personal loan balance transfer. Do you know what it is?
Personal loan balance transfer
Balance transfer of your personal loan is when you transfer an existing personal loan to another lender. Balance transfer of personal loans is usually done to get the benefit of low interest rates offered by another lender and to make the loan more affordable. Balance transfer of your loan would prove to be a good option in the following instances –
Considerable savings in interest rates
If the interest charged by another lender is considerably lower than your existing interest rate, balance transfer would prove beneficial. For instance, if your current rate is 12.50% and another lender is offering a rate of 11.49%, balance transfer would be a good choice.
The promise of better services
It might happen that you are dissatisfied with the services offered by your current lender. In that case, you can choose the option of balance transfer and transfer your personal loan to another lender who promises better services.
Negotiation of higher repayment tenure
If another lender is offering you an extension on the repayment tenure and you want higher repayment tenure to reduce your monthly EMIs, balance transfer would be a good choice.
For availing additional funds
Balance transfer of personal loans might also promise you top-up loans if you negotiate with the lender. So, if you are in need of additional funds, you can go for such an option and transfer your existing personal loan.
In the above-mentioned instances, transfer of the personal loan to another lender would prove beneficial. However, the processing fee involved in the balance transfer should be noted. If the balance transfer requires a high processing fee, the actual saving through a lower rate of interest would be low. If the actual saving is not a very substantial amount, balance transfer would be a waste. In fact, a balance transfer is advised in the starting years when a slight difference in interest would save a substantial amount. If the loan is nearing the end of the repayment tenure, balance transfer might prove costly as you would have to pay a processing fee for the transfer.
So, assess your situation before opting for personal loan balance transfer. Your decision should be well thought of and not random.