If you’ve found a car loan better than the one you currently have and wish that you had taken that loan instead, you haven’t missed your chance. Banks allow you to transfer your car loan to another financier. This process is called a Balance Transfer. A balance transfer is a good idea for any loan but very few people are aware of the option and its advantages. Another reason to transfer your loan is a change in your income. If you can afford to clear your loan in higher EMIs, you’ll be able to save on interest. Balance transfers allow you to take a fresh look at your debt and make changes according to your current status. Normally, there is a balance transfer fee associated with this service. So you should check if the transfer is worth it after all the fees are paid. To make a balance transfer, the process is quite simple. For example, your car loan is from Bank A, but you like Bank B is offering you a much lower rate of interest. If you transfer your outstanding amount, Bank B will pay off the loan from Bank A, and you can continue to pay your EMIs to Bank B at better terms and conditions. Customers can take advantage of lower interest rates and bring down the total cost of their loan.
To get the best deal, you need to shop around. You can check online or call different banks to get information on the schemes they offer. You need to check if you are eligible to transfer your loan to the bank you are interested in. You will need to find out the bank’s rate of interest on your balance transfer and if any fees are applicable.
You will need to get a quote from the bank at which your car loan is currently being serviced. Find out the principal amount remaining, the tenure completed, and the rate of interest. You can also find this information online if you have a net banking account. You also need to ask your current bank for the name in which the cheque or DD should be made for balance transfer.
You should find out how much you would save by transferring the loan to another bank. Find out details of your current loan such as the tenure left, the principal amount and the rate of interest. You can use an Car Loan EMI calculator available online to do these calculations.
For example, you take a car loan in April 2016 for Rs. 4 lakhs for 3 years at 17% per annum.
Now let’s take a look at your savings and the change in your EMI if you choose to transfer your loan. The table below does not include any balance transfer fees applicable.
|Details||After 1 year||After 2 years|
|Outstanding Principal||Rs. 3,18,119||Rs. 1,91,501|
|Current Interest Payable||Rs. 66,927||Rs. 22,413|
|EMI after balance transfer||Rs. 15,124||Rs. 17,104|
|New Interest Payable||Rs. 44,856||Rs. 13,751|
|Savings on Interest||Rs. 22,341||Rs. 8,662|
|Processing fee of 1%||Rs. 3,181||Rs. 1,915|
|Total Savings||Rs. 19,160||Rs. 6,747|
So as you can see, transferring your loan after 1 year will make sense as you will save a large amount of interest. But transferring your loan after 2 years might not be sensible after you take into account the fees charged for balance transfer. The reason for this is that your EMI comprises of two components: Principal and Interest. Banks charge majority of the interest payable at the beginning of the loan by increasing the interest component in the EMI. The principal component of your EMI increases towards the end of your loan tenure.
You will need to submit the following documents to the bank to which you want to transfer your loan.
Each bank might have a different process of transferring the loan. You will have to go through one of these processes.
Balance transfers are available to everyone. Many people just stick with their loan and don’t think about a balance transfer, but it can greatly reduce the interest you pay. It can also reduce your EMI amount which can lighten up your budget. Overall, your loan will cost less and you’ll be able to save.
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