During the financial crisis, individuals may not research in-depth and may often avail of a personal loan with a high rate of interest. Most banks and lending institutions offer a balance transfer facility, wherein borrowers may transfer their outstanding amount to another lender which has a lower rate of interest. Borrowers may also seek to transfer their loan due to better features like flexible repayment options, which the previous lender may not have offered.
The main aim behind such a facility is to reduce the burden of debt through a loan with a lower rate of interest. Borrowers must opt for a balance transfer only if it is financially sound otherwise, they may end up incurring additional costs instead of saving. It is important to note that lenders charge a processing fee for balance transfers on the outstanding amount.
The following are three reasons why borrowers transfer a personal loan from one lender to another.
- Better rates of interest
Many times, lenders reduce their interest rates based on external factors such as monetary policy and economic conditions like inflation. During such times, borrowers may transfer their loan from their existing lender to the lender which offers a lower interest rate. This may entail a nominal charge but will reduce their EMIs considerably due to lower interest rates.
- Better services offered by another lender
Quite often, borrowers may be dissatisfied with the services offered by their current lender. They may wish to make a balance transfer of the personal loan to a lender that offers better services. These services may be in the form of online facilities, flexible repayment options, and quicker response time, among others.
- Requirement of additional finance
There may be times when individuals require additional funds. If they already have borrowed a loan from a particular lender who levies a high-interest rate, another financial company may offer them additional funds with lower rates of interest with the condition to transfer the existing loan to them. Such an arrangement is known as a top-up loan. Borrowers may avail of such loans with minimum hassles.
Making a decision
The deciding parameters on whether to transfer or not depend on the total savings through lower interest rates. Borrowers must identify the transfer cost and conduct a cost-benefit analysis. They may also check if their current lender is willing to reduce the interest rate. However, the ultimate decision depends on individual financial situations.
Balance transfer helps make changes according to the borrower’s financial requirements. However, it is imperative to consider all the aspects before opting for such a facility. It is advisable to avoid making a hasty decision. Individuals must transfer their personal loans only if it provides long-term benefits.