For various reasons, customers transfer their loan from one bank to another. But it is necessary that as borrowers they look into every aspect of a loan transfer while doing so. Sometimes, people opt for loans with higher interest rates at the times of emergency and get burdened by the monthly installments later. In such cases, they can transfer their remaining balance to a different bank that offers a lower interest rate or extends the tenure of repayments.
Say for example, Ramesh opted for a personal loan from HDFC bank to meet his immediate hospital expenses. But after 3 months when he decided to go for a top up loan, Ramesh learned that he was ineligible for the same at that time. In this situation he decides to transfer his personal loan from HDFC to Axis bank, which offers him a higher loan amount and a reduced EMI.
Please note that the financial institutions mentioned in the above example have been taken only for demonstrational purposes and it’s in no way related to the actual terms and conditions on loan products offered by them.
Basically, borrowers approach a new bank to repay the outstanding balance in their existing loan and when this happens, they automatically stand indebted to the new lender. Here, the borrower is benefited with lower EMIs while the lender acquires new business. But there are things beyond a lower EMI and an extended tenure that you need to consider while applying for a loan transfer. It’s discussed in the points that follow.
Even though your new bank may offer a reduced EMI and a longer repayment period, it should be understood that such offers come with a price of its own. Therefore, make sure that you opt for a loan transfer only after calculating the total cash outgo. Arrive at a decision only after you have compared your existing EMIs against the length of duration offered under the new plan.
While making comparisons between your present loan payment and the new one, always make sure that you include all the additional charges such as stamp duty, processing fee, and legal and technical charges. The processing fee calculation depends on the bank you choose. For some banks it is calculated as a percentage of the outstanding loan amount, while for other banks it’s based on the borrower’s occupation.
At the time of loan transfer, make sure that you do not submit the original collateral to the new bank if you have already paid a significantly large portion of the total EMIs. In case you have no other option but to do so, then find out the offers and other benefits that comes along. Even the little things count while making such important decisions. For example, if you are a premium customer of the bank you transact, then you will have better access to their services compared to any new customer. Therefore make sure that you look deeper into each and every aspect while planning your loan transfer.
It is advisable that you do not opt for a loan transfer if there is no considerable difference in the rate of interest offered by the new bank. In addition to that, check the add-ons offered by lenders such as free credit card and accident insurance. Analyse whether such accompaniments are of value, before finalizing the deal.
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