A Guide to Personal Loan Balance Transfer in India

Over the last five years, especially between 2022-2025, the RBI’s repo rate surged from as low as 4.00% to 6.25%, making it slightly expensive to opt for a large amount of personal loans for the middle & lower-middle income class.

With increasing interest rates, borrowers are always searching for better and more affordable loan conditions that reduce the pressure on their overall financial situation. Hence, most people opt for a facility where they transfer their Personal Loan balance to a different lender.

In this blog post, we'll discuss how Personal Loan balance transfer can help reduce your EMIs, when you should do this, and factors to consider before you opt for it.

What is a Personal Loan Balance Transfer?

A Personal Loan balance transfer means transferring your outstanding Personal Loan from your existing lender to a new lender with better terms, like low interest rates or lower EMIs. 
Simply put, if your existing lender has a higher interest rate, you can shift your outstanding loan amount to a new lender with lower interest rates, an easier repayment schedule, or other offers.
For instance, suppose you have your existing Personal Loan of ₹10 Lakh with an interest rate of 15%. If a different lender offers you the convenience of transferring this loan at an interest rate of 11%, you can save a considerable amount of interest on the loan's outstanding tenure. Using a Personal Loan balance transfer is an effective way for borrowers to cut down their overall cost of borrowing.

What are the Main Benefits of Personal Loan Balance Transfer?

Personal Loan balance transfer offers multiple benefits, besides lower interest rates, which will help you manage your finances efficiently. Here are some of them:

1. Lower Interest Rates
The most obvious benefit is the potential for a lower interest rate. By transferring to another lender, you can reduce your EMIs significantly and save a lot of money over the loan’s tenure.

2. Facility to Take Top-Up Loans
Many lenders provide the option of a top-up loan when you transfer your existing Personal Loan. This allows you to access additional funds at competitive interest rates without taking out a separate loan. However, approval depends on your eligibility and the lender’s policies.

3. More Flexible Loan Terms
The new lender might provide more flexible terms like easy repayment schedules, no prepayment penalty, and lower processing charges. This makes it simpler to repay the loan in the long term.

4. Better Credit Score
By opting for a Personal Loan balance transfer online and settling your dues on time under the new terms, you can improve your credit score and credit history. A good credit record will serve you well when borrowing in the future.

5. Debt Consolidation
One of the most important benefits of using a Personal Loan balance transfer is the possibility to consolidate multiple debts. If you have numerous high-interest loans, such as credit card bills, consumer loans, or other personal loans, a balance transfer allows you to consolidate them into a single loan with a lower rate.

When Should You Consider a Personal Loan Balance Transfer?

A Personal Loan balance transfer can prove to be highly beneficial if timed well and done for the right reasons. Avoid rushing the decision; carefully assess your finances first. Here are the situations where a transfer makes the most sense:

1. When You are Offered a Reduced Interest Rate 
The prime reason that borrowers opt for a Personal Loan balance transfer online is to enjoy reduced interest rates. The profit, however, should be sufficient to cover transfer fees. 
You should ideally opt for the transfer when the new lender is offering 1–2% lower than your existing interest rate. For instance, if you are paying 15% and the new lender is offering 11–12%, savings over time will be significant.

2. When You Have a Longer Tenure Remaining
A Personal Loan balance transfer is a good option at the start or during the tenure of your loan, as the early years go mostly towards paying the interest on your loan. If you have already paid off a significant portion of the tenure in interest payments, then your savings will be less. 
Hence, a Personal Loan balance transfer towards the end of the tenure may not be worth it.

3. When You Want to Lower Your EMI
People who are overwhelmed with monthly repayments can opt for a Personal Loan balance transfer to stretch out the term and lower the EMI. This relieves monthly financial pressure. However, it will marginally increase your interest costs.

4. When You Require Additional Funds
Most banks/ NBFCs offer a top-up loan facility in addition to balance transfer. If you require additional funds for personal expenditures, education, or medical expenses, opting for a Personal Loan transfer will help you get additional credit at lower interest rates.

How Personal Loan Balance Transfer Works in India?

With the help of digital advancements, the process of a Personal Loan balance transfer online has been significantly simplified. Below is a simple step-by-step walkthrough:

●    Evaluate Your Loan: Determine the amount outstanding, the tenure, and the interest rate for your pending Personal Loan.
●    Compare Lenders: Search for lenders who offer you better conditions and lower interest rates.
●    Check Eligibility: Make sure that you are eligible for the Personal Loan balance transfer online and are a credit-worthy borrower for the new lender.
●    Apply Online: Along with your application for a Personal Loan balance transfer, submit proof like identity proof, address proof, and loan statements.
●    Approval and Transfer: Once approved, the new lender will settle your outstanding loan with the existing lender and transfer the unpaid balance under the revised terms.
●    Repayment Under New Terms: You will then begin repaying the loan to the new lender as per the updated schedule and conditions.

Factors to Consider Before Opting for a Personal Loan Transfer

A Personal Loan balance transfer is a great way to save money. However, you still need to consider some important factors before you finally decide to transfer the loan.

1.    Processing Fees with the New Lender
The new lender will charge a processing fee to provide you with a Personal Loan balance transfer facility. You must take these additional charges into consideration when making a new application.

2.    Prepayment Charges with Current Lender
Many lenders impose prepayment or foreclosure charges if you close your loan before the end of the tenure. It’s important to assess whether the potential savings from lower interest rates exceed the other charges levied by the previous and new lender.

3.    Documentation and Approval Process
Personal Loan balance transfer requires you to submit several documents, such as identity proof, address proof, income proof, bank statements, and existing loan documents for approval. 
Make sure to check the requirements before applying for a Personal Loan transfer with a new lender.

Common Myths About Personal Loan Balance Transfer

Here are some of the most common myths and facts about Personal Loan balance transfer in India:

●    It is complicated: The process of a Personal Loan balance transfer online using digital platforms is very simple and takes minimal time and effort.
●    It always saves money: The savings are not always certain and are rather dependent on factors such as the difference in interest rates and tenure. Several factors must be assessed thoroughly to get more benefits.
●    It is only suitable for a large amount of loans: Even smaller balances with lower interest rates can lead to savings, making a Personal Loan transfer worthwhile regardless of loan size.

To Conclude

A Personal Loan balance transfer is an excellent tool to lower your financial burden on a Personal Loan. However, before you opt for it, always compare interest rates, tenure, charges, and your overall financial goals. 

No matter if you want to lower your EMIs, merge debt, or get more funds, a Personal Loan transfer is an extremely useful financial instrument as long as you are capable of managing it responsibly.
Looking to reduce the burden of high interest rates? Apply for a Personal Loan Balance Transfer with Poonawalla Fincorp and enjoy long-term savings.

FAQs

Can I apply for a Personal Loan balance transfer if my credit score is average?
Yes, you can. However, the new lender will offer stricter terms or a slightly higher interest rate; a strong credit score helps unlock the best deals.

Is it possible to get a top-up loan during a Personal Loan transfer?
Many lenders allow top-up loans alongside transfers, giving you extra funds at competitive interest rates.

Will transferring my Personal Loan reset the EMI due date every month?
Yes, your EMI cycle is restructured by the new lender, and the due date might change depending on the disbursement date.

Can I negotiate charges like processing fees during a Personal Loan transfer?
Yes, many lenders are open to waiving or reducing fees if you have a strong repayment track record.