What is a personal loan balance transfer?
Balance transfer is an efficient tool that can help move your outstanding debt to a new personal loan account or a different credit card with low interest rate enabling you to repay your outstanding amount and help you save on high interest charges.
Transferring your liability is a great move if you are neck deep in debt or just want to take advantage of the low interest rate.
This illustration will help you understand the process: Say you have a credit card having a debt of Rs.2000 on it with an interest of 2.5% per month. You are paying Rs. 60 as interest per month whereas if you transfer your balance to a credit card B offering you either 0% interest or a low interest of say 1% this will reduce your interest rate to Rs. 20 per month hence helping you save a huge amount on the interest. The existing debt can be transferred to a personal loan as well.
The interest rates offered by banks for balance transfer is called a teaser rate and it comes with a fixed tenure within which the outstanding amount should be paid off.
Here are few points that you should consider before you make this move:
Why do a balance transfer?
There are many benefits you gain once you decide to transfer your loan or credit card amount. This means you avail the benefit of low interest rate offered by your current lender or a different financial institution and save a substantial amount of money over a period of time.
Consolidating your debt
If you have many loans and multiple credit cards, it makes sense that you consolidate all your debt to a single account and not be hassled by remembering different due dates and minimum amount due on each card or loan. This will help you keep a track of just one loan account and help you get a good interest rate too.
Before you decide on transferring your balance it will be wise to check on the one-time fees that will be charged by your new lender. Considering this amount will give you a clear picture of the total amount that you will save if you decide to transfer your outstanding dues. Generally, this fee is a percentage of the total outstanding amount being transferred to the new account.
Check validity of the new transfer rate
You need to ask the bank or lender for the duration that the transfer interest rate will be valid for. This will help you plan your repayment amount and be prepared if you default. Generally, the interest rates after the validity expires are higher than the rates you were trying to get away from. Hence it is best to enquire and be aware of the validity. You will also need to check the interest rate that will be applicable on new purchases.
Repetitive Balance Transfer
While balance transfer is a great move to save interest charges, becoming a habitual transferor can hit your credit score hard. Banks will see you as a high-risk customer if you keep transferring your balance but maintain a high debt. This will make it hard for you to avail home or car loans, and will also affect your chances of securing competitive terms for future loans.
All in all, a balance transfer is a great tool for you to sort your financial complexity; however, you need to plan it well and pay it off within the stipulated deadline so that you don’t end up accruing more debt than before.
If you are looking to do a balance transfer, consider taking a personal loan from Bajaj Finserv. With easy options and multiple tenures for personal loan repayment, low rates of interest and easy online application, personal loans from Bajaj Finserv may serve you well. Click here to know more: