Personal Loan Balance Transfer vs. Personal Loan: Which Should I Choose?

Personal loans being unsecured loans, come with high-interest rates. But if you are currently repaying one such high-interest personal loan, there are two main options that you can consider for reducing the interest burden. One is using the balance transfer facility or taking a new cheaper personal loan to repay the current loan.

What is the Balance Transfer Facility?

With the balance transfer facility, you get to transfer the outstanding balance of your personal loan to another lender who is offering a lower interest rate. This can help in reducing the monthly EMIs and the overall amount you repay to the lender. While this might sound like a wise solution, there are a few things you should know about balance transfers. Take a look-

• Balance transfer will require you to pay foreclosure charges to the current lender and loan processing charges to the new lender.
• The savings will mostly not be significant if you've already repaid most of the loan amount.
• You will be required to fulfil the eligibility criteria of the new lender to use this facility.
• You should have a clean repayment history to be eligible.
• You can only use this facility if the outstanding amount is above Rs. 50,000.

What Does It Mean to Take a New Personal Loan to Repay Your Current Personal Loan?

As you might have understood already, this process involves taking a new personal loan from a different lender at a lower interest rate. You can close the current loan account with the help of the funds you receive through the new loan and then begin paying EMIs to the new lender.Here are a few things you should know before using this option-

• One of the most significant differences between personal loan balance transfer vs personal loan is the eligibility requirements that can be more stringent if taking a new personal loan.
• As you already have an existing personal loan, getting approved for a new loan can be more challenging.
• Rejections can damage your credit score.

Both options have their advantages. The right choice for you is the one that best matches your requirements and offers higher savings. You can consult a few different lenders to understand better the amount of money you'll save with both options.Go ahead with one of the two only if the savings are significant or you have any other major reason for switching to a different lender.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.