If you really think about it, it's easier getting a loan for a car than a loan for bus fare!

    How to Transfer a Car Loan

    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.

    Shop for the Best Car 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.

    Talk to the current bank

    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.

    Perfect Car Loan Deals for you

    Do your Car Loan EMI Calculations

    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.

    • Your EMI is equal to Rs. 14,261.
    • The total interest payable is Rs. 1,13,399.
    • So the cost of your loan is Rs. 5,13,399.

    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.

    Documents Required

    You will need to submit the following documents to the bank to which you want to transfer your loan.

    • Two photographs
    • Identity proof
    • Address Proof
    • Any KYC Documents as required by the bank
    • For a salaried individual
    • Last 3 months salary slip
    • Last 3 months of bank statement where salary is credited
    • PAN card
    • For self employed
    • Last 3 years' Balance Sheet and Profit & Loss Statements
    • Last 6 months Current Account Statements of the business entity
    • Savings Account Statements of the individual
    • TAN Card

    Transferring the car loan

    Each bank might have a different process of transferring the loan. You will have to go through one of these processes.

    • The loan will be disbursed and credited to your account. You can then pay off the old loan in full.
    • The new bank will issue a cheque or DD in favour of the other bank. You need to find out whose name the cheque will have to be made out to.
    • The new bank will deal directly with the other bank in paying off the loan.

    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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