One does not want to keep debt for a long time, everyone wants to reduce their debt and get rid out of debt, however managing debt can be challenging. If we implement the right strategy, we can manage our debt or reduce debt. One such the strategy is Balance Transfer of Loan.
This article explores how Balance Transfer can help in Reducing debt.
What is a Balance Transfer of Loan?
A balance transfer refers to moving debt from one lender to a new account of a new lender. One example can be moving the debt from an old credit card to a new card with a lower interest rate.
By doing so you can save money on interest payments. Most financial institutions offer Balance Transfer facilities to retain existing customers and attract new ones.
Those who are worried about credit card debt a personal loan or a home loan – can use a balance transfer because it gives you a chance to lower your debt without worrying about interest for a certain period.
There are cases that a person avails loan at higher rates because of reasons like:
- Requirement of more amount.
- Problem with CIBIL or income proofs.
- Builder or Banker may insist on some specific company to take loans. Etc…
After some time you may realize you have taken a loan at higher rates than the ones you can get in the market. Balance Transfer of Loan Facility comes in handy here.
Features of Balance Transfer of Loan
- Some companies charge an amount for offering a balance transfer service and some companies waive the charges. One can use such offers to transfer their debts.
- Balance Transfer offers a range of options for borrowers who seek to manage their debt more effectively. For eg, certain features like free down payment may not be available with one lender. But by transferring you may get to use these facilities with the new lender.
- You may increase (based on eligibility) or decrease the loan amount by prepaying a part while transferring the balance. You may also change EMI & tenure as per the rules of the new lender.
- Continuously opening new credit cards or loans can harm your credit scores in the long run. So balance transfer helps in minimizing such worries.
- Non-handling of documents – In loans lenders normally retain PDCs or property papers with them until you finish the loan. In case of a balance transfer of loan, the papers move from the old lender to the new lender internally. Hence it is an easy, safe & transparent process.
Process of Balance Transfer
First around your preferred choice for balance transfer. Check their offers, their interest rates along with their features, benefits, processing fees, and other charges.
Once you decide check or negotiate the terms with your current lender to see if they can offer you the same or better loan terms.
If not, decide to go ahead with the transfer.
Get an NOC (No Objection Certificate), foreclosure letter, loan repayment record, and property documents list from your existing lender.
Fill out the home loan application process with the new lender by submitting the application form and all other required documents.
Once they are sanctioned, they issue a sanction letter and sign the loan agreement with the new lender.
Now your new lender will pay off your outstanding loan amount.
Once the previous lender receives the outstanding loan amount, they will close your loan, and transfer papers/PDC to the new lender.
Considerations and Fees
Balance Transfer is an effective way to reduce debt. However some balance transfers come with an introductory period during which a lower interest rate is applicable but after this period, the interest rate may increase. You must watch for this.
Also, middlemen, and agencies may ask for some processing fees, etc. Confirm the correctness and then only make payments.
Discipline and Repayment Strategy
To maximize the benefits of balance transfer, borrowers must adopt a disciplined approach to debt repayment. Balance transfer does not give you a right to make late or no payments.
It is essential to make regular and timely payments to clear the transferred balance within the desired timeframe.
Consolidation and Simplification
Apart from reducing interest rates, balance transfer of loans also allows you to consolidate multiple debts into a single account.
This provides them with a clear overview of your outstanding balance to them. This also eliminates the process of checking multiple due dates and interest rates. This can be your repayment plan or strategy.
Conclusion
- Balance transfer can be a valuable tool in reducing debt.
- You can take advantage of the balance transfer service and save your money.
- Before making, any decision consider all the factors, terms and conditions, and benefits of the offer.
- Creating a budget, cutting unnecessary expenses, and avoiding new debt during the repayment period to prevent further financial strain.
- It is crucial to read the terms and conditions of the Balance Transfer of Loan agreement.
Hope you enjoyed learning this new concept.