The Personal Loan Balance Transfer (PLBT) facility allows existing customers of other banks and non-bank financial companies (NBFCs) to switch their existing loans at lower interest rates.
Similar to a personal loan, PLBT does not need any security or collateral. The two little fees that need to be paid are the foreclosure and loan transfer fees to your current lender. The loan processing charges, stamp duty, and other costs typically assessed when submitting a new personal loan application may also be assessed by your prospective lender.
Fees and Charges for Processing Balance Transfer
If you took out a personal loan with fixed interest rates, your current lender may charge you a foreclosure penalty of up to 5% of the remaining loan balance when you move it to a different loan provider. When personal loans with variable interest rates are approved, lenders won’t impose foreclosure fees. During the personal loan balance transfer, the newly chosen lender would impose a processing cost ranging from Rs. 500 to 4% of the existing loan amount.
Estimation of Interest Cost Savings from Balance Transfers of Personal Loans
An example of how a personal loan balance transfer could reduce your overall interest due is provided in the following table:
| Original Loan Amount | Rs. 5 Lakh | Rs. 10 Lakh |
| Existing Rate of Interest | 15% p.a. | 15% p.a. |
| Original Repayment Tenure | 60 months | 60 months |
| EMI already paid | 12 | 12 |
| EMI to be Paid | 48 months | 48 months |
| Existing EMI | Rs. 11,894 | Rs. 23,789 |
| Outstanding Loan Amount | Rs. 4,27,416 | Rs. 8,54,819 |
| New Rate of Interest | 11.50% p.a. | 11.50% p.a. |
| New Tenure | 48 months | 48 months |
| New EMI | 11,150 | 22,301 |
| Total Savings | Rs. 35,712 | Rs. 71,424 |
An Example of How Personal Loan Balance Transfers Can Impact Your Repayments
If you have a personal loan, you want to think about transferring your balance at least once while the loan is still in play. This will cause your interest rates to drop, which will allow you to make interest payment savings.
Let’s use an example to better understand this.
Assume you have taken out a Rs. 3 lakh personal loan with a 36-month repayment period. The interest rate is 18%. In this scenario, the total interest you would pay throughout the loan term would be Rs. 90,446 and your monthly EMI would be Rs. 10,845.
In the event that you transfer the balance after a year and the interest rate is lowered to 11.29%, the remaining balance on your loan will be Rs. 2,17,254. In this instance, your monthly EMI will be reduced to Rs. 10,115, meaning that your overall savings will be Rs. 16,560.
The Table Below Illustrates the Same Thing:
| Particulars | Loan Amount | Interest Rate | Tenure | EMI |
| Original | Rs.3 lakh | 18% | 36 months | Rs.10,845 |
| After Balance Transfer | Rs.2,17,254 | 11.29% | 24 months | Rs.10,155 |
| Monthly EMI Saved | Rs.690 | |||
| Total Savings | Rs.16,560 | |||
Features and Advantages of Personal Loan Balance Transfer
Reduced Interest Rate: Getting a lower interest rate and, hence, lowering one’s total interest expenses is one of the main goals of executing a personal loan balance transfer.
Longer Repayment Tenure: Borrowers may choose a repayment period that is longer than the residual loan tenure of their current personal loans by utilizing the personal loan balance transfer feature. His monthly EMI expenses will be lessened with a longer tenure. But the borrower would have to pay more in interest as a result of this.
Take Advantage of Top-Up Personal Loans: For borrowers who are transferring their current personal loans, many lenders provide top-up personal loans. Therefore, the ability to transfer the balance of an existing personal loan would help those who are either unable to obtain top-up loans or are paying higher interest rates for them.
Eligibility for Balance Transfer of Personal Loans
The following are the fundamental requirements for PLBT eligibility:
- Age range: 21 to 65 years old, maximum
- Both salaried people and independent persons.
- The amount of the current outstanding loan must be at least Rs. 50,000, or as determined by the lender.
- A clear payback record.
- Work Experience: Generally, a year’s worth of work experience is needed, while some lenders demand more.
- Rs. 15,000 is the minimum monthly income.
- CIBIL Score: Generally greater than 750.
Required Documents
| Document Type | Required Documents | Additional Documents for Salaried Individuals | Additional Documents for Self-Employed Individuals |
| Application Form | Duly signed application form with passport size photographs | N/A | N/A |
| Identity Proof | PAN card, Driving license, Passport, Voter ID, Aadhaar Card | N/A | N/A |
| Age Proof | PAN card, Driving license, Passport, Voter ID, Aadhaar Card | N/A | N/A |
| PAN Card | Mandatory | N/A | Business PAN card |
| Address Proof | Aadhaar Card, Passport, Landline Bill, Latest Electricity bill, Rent agreement | N/A | Business address and vintage proofs |
| Bank Statement | N/A | Last 6 months’ bank statement | Last 6 months’ bank statements of individual and business entities. |
| Salary Slip | N/A | Salary slip for last 3 months | N/A |
| Personal Loan Statement | Statement of personal loan from a current lender (for the loan that needs to be transferred). | Statement of personal loan from a current lender (for the loan that needs to be transferred). | Statement of personal loan from a current lender (details of the loan that need to be transferred). |
| Financial Statements | N/A | N/A | Last 3 years’ Balance sheet along with profit and loss statement pertaining to business. |
Procedure for Transferring the Balance on a Personal Loan
Following are the typical steps in the process of transferring a personal loan balance:
- Estimate the interest savings by comparing the current rates that other lenders are willing to offer you on a personal loan.
- Check out the projected cost of the loan transfer while accounting for any applicable charges and fees.
- After calculating the net benefits, decide if you wish to proceed with the balance transfer or not. Make a shortlist of potential lenders to whom you might want to move your current loan.
- Check out the interest rates, loan size eligibility, and loan procedure of the lenders that made the short list.
- Apply for a NOC (No Objection Certificate) once you’ve chosen the new lender and are ready to move forward with the transfer.
- Apply for a loan with the new lender now. Send in the loan documentation and the entire payback history.
- Receive a sanction letter, then sign the new loan contract with the chosen lender.
- Receive a payment from the new lender in the form of a demand draft or cheque made payable to the former lender for the amount of the remaining loan balance that you were required to pay.
- The previous lender will cancel all of the cheques and ECS and close your personal loan account after they have received the remaining loan balance.
Who is Eligible to Use the Balance Transfer Feature for Personal Loans?
Lenders who meet their loan eligibility requirements offer this option to current borrowers of personal loans from other lenders.
Does Transferring the Balance of a Personal Loan Impact Your Credit Score?
In order to verify your credibility, the new financial institution would look up your credit report when you used the personal loan balance transfer alternative. Lender-initiated loan inquiries are therefore regarded as hard inquiries, and each one will result in a few points being deducted from your credit score by credit bureaus.
Therefore, choosing to transfer the balance of your personal loan could lower your credit score by a few points. On the other hand, applying for a personal loan balance transfer with several lenders in a short period of time may cause your credit score to drop more sharply.
Why Should You Transfer the Balance on Your Personal Loan?
It makes sense to transfer the balance on your personal loan if:
- You want to select a different lender that provides better terms for personal loans.
- Your salary has significantly grown, and you can now afford to pay more EMIs to pay off the loan faster.
- Your credit score has increased, and another financial institution has offered to provide you with better terms on a personal loan according to your credit score.
- For your personal loan, you would like to add or remove a co-applicant.
- In order to lessen the strain of increased EMIs, you should extend the repayment period.
Things to Be Mindful of Before Deciding to Transfer the Balance of Your Personal Loan
Transferring the balance of a personal loan can be a smart move for managing debt, but it has to be planned carefully.
Interest Rate: Refinancing your loan makes no sense if the interest rate is higher because you’ll have more debt to pay off. Instead, you should refinance with a different lender. It ought to be less than what you now pay as a result. Reduced rates result in fewer monthly payments and a quicker payback of debt.
Conditions and Guidelines: Check the conditions that your new lender has set for transferring the balance of your personal loan. Use your strong credit history as leverage to get better conditions, such as a reduction in processing fees and a waiver of your most recent EMI.