Refinance Your Personal Loan

When an emergency strikes, your cash flows are constrained. You take a Personal Loan from a financial institution at a high-interest rate because you are in dire need of funds. However, you are now looking for ways to lower the interest burden, reduce your EMIs and breathe easy. Is it possible to do a loan transfer?

The answer to this is Personal Loan balance transfer or refinance.

What is a Personal Loan balance transfer?

A Personal Loan balance transfer is a process wherein a customer transfers the total outstanding Personal Loan from one bank to another. It usually happens when the new bank extends a lower rate of interest on the outstanding loan amount. Hence, the primary purpose of a Personal Loan transfer is to decrease the overall burden of debt.

One needs to meticulously assess the Personal Loan balance transfer offer and choose the best one to save on the total interest payable. The loan transfer process does not require any collateral be provided by the borrower.  A few nominal charges for the Personal Loan balance transfer would entail foreclosure charges, processing fees and stamp duty on the loan agreement (if applicable).

For instance, if you approach HDFC Bank for a Personal Loan transfer, HDFC Bank will take over the loan from your existing lender and offer you a competitive loan and interest rate. You will have to pay all your future EMIs to HDFC Bank.

HDFC Bank has some great Personal Loan balance transfer offers, including an affordable interest rates and lesser processing fees.

You can also opt for an HDFC Bank loan transfer if your financial circumstances have improved and you want to increase or decrease your loan tenure or EMI, and your current bank is unwilling to accommodate you.

How does Personal Loan balance transfer work?

What typically happens for a Personal Loan transfer from one bank to another is that your new bank – HDFC Bank in this case – pays off your existing loan. If your current loan comes with a prepayment clause, you may have to incur those charges. Also, you may have to pay the processing fees for your new loan. However, with a lower rate of interest, your savings would increase, and it would compensate for these charges.

The Benefits of a Personal Loan balance transfer:

• Enhanced Rate of Interest:
  The first advantage of a Personal Loan balance transfer facility is that the rate of interest is decreased, which in turn lowers the borrower’s interest burden through lowered EMIs. Generally, the new lender will offer a lower rate of interest on the loan transfer.

• Extended Duration on the Loan:
  When a Personal Loan transfer from one bank to another is carried out, the tenure of the existing Personal Loan can be negotiated. You can get the repayment period of the loan either extended or lessened depending on the requirements. The EMI and interest burden increase and decrease accordingly.

• Greater Features:
  This benefit depends on your past payment record, your CIBIL score and the ever-changing income dynamics. Some lenders may provide loftier features such as zero processing fees, a lower rate of interest, waiver of the last EMI, and so on. The Personal Loan balance transfer facility cannot only reduce the Personal Loan interest burden, but the borrower may also obtain better loan features in the bargain.

• Increment of loan Facility:
  Most of the banks allow a top-up facility along with the Personal Loan transfer.  Many banks and financial institutions offer new loans and top up facilities for Personal Loans at competitive and lower interest rates.

Would loan refinance be a better option or a loan transfer?

Making the decision

Refinance is a great option, if available, in the early years of your loan. That’s when the interest component in your EMIs is the highest. The interest component progressively becomes lower. You can also use the Personal Loan transfer calculator to know what to expect.

Before you make your decision to refinance, evaluate the following:

• What is the pre-payment penalty with your existing bank and processing fees with your new bank?

• What is your savings in terms of interest? Do a cost-benefit analysis to find out how much you will stand to gain.

• Is the EMI for the same amount of loan lower than your current loan?

HDFC Bank offers loans with EMIs starting as low as Rs 2,144 per lac*.

Now you will be in a better position to make a decision.

Read more on how to close a Personal Loan successfully for your next loan application.

You can apply for personal loan here.

* Terms & conditions apply — Personal Loan disbursal at the sole discretion of HDFC Bank Ltd. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.