Personal loans can offer an easy way to help people meet their urgent financial needs. Whether it’s to fund a wedding, pay for a medical emergency, or finance a dream vacation, these loans can provide you with the amount needed to meet your goals. However, keeping a tab on the Equated Monthly Instalments (EMIs) is vital. EMIs can become a burden on your budget if you have existing financial commitments. Opting for a personal loan EMI balance transfer can ease your pain. Let’s delve deeper to understand how it can be achieved.
What is a personal loan balance transfer?
A personal loan balance transfer can be explained as the process of transferring your existing/pending loan to a new lender who is offering better terms. Usually, people opt for a personal loan balance transfer because of the lower interest rate. This can help reduce the EMI burden, providing you with more financial flexibility. Let’s explore how you can reduce your personal loan EMI burden with a balance transfer.
Check interest rates from different lenders
Conducting your research and comparing the interest rates offered by different lenders is crucial. You should choose a lender who offers a lower interest rate. Doing this will reduce the overall interest charges that you have to bear. You can check the current interest rates on the websites of different loan providers or by directly approaching the lender.
Most people who are taking a loan for the first time aren’t aware of all the charges associated with the loan. While transferring your loan, checking for any hidden charges that may impact the overall cost is important. Comparing the cost against the benefits of transferring the loan is crucial. For example, some lenders may offer a lower interest rate but may charge additional fees, such as processing fees, prepayment penalties, or other hidden charges. Before opting for a balance transfer, you must read the terms and conditions carefully.
3. Choose a shorter loan tenure
You must opt for a shorter loan tenure if you are capable of repaying the dues timely. Opting for a shorter loan tenure when transferring your loan can also save you a great deal of money. A shorter term will result in a higher EMI but will reduce the total interest you have to pay. This will ultimately lead to savings in the long run. By reducing the loan tenure, you can reduce the interest paid on the loan and, thus, the total cost of borrowing funds. For example, suppose you have a personal loan with a tenure of five years, and you’ve paid off two years. By opting for a balance transfer and reducing the tenure to three years, you can save on the interest payment and pay off the loan faster.
4. Maintain a good credit score
The credit score of a borrower measures their creditworthiness in the market. It is calculated based on your credit history, payment patterns, and other factors. A score of 750 and above is considered a good credit score. Most lenders have minimum credit score criteria. A good credit score can help you get a great deal on a personal loan balance transfer. The lending party prefers to lend money to people with good credit scores. It’s because it signifies their ability to repay the loan easily.
5. Plan your finances well
It is essential to forecast your financial requirements in the near future and plan things accordingly. Transferring your loan is only helpful if you plan your finances well. You must create a budget and track your spending to make sure that you meet the EMI payments. It will help you avoid defaulting on your loan EMIs. Defaulting on EMIs can lead to a debt trap as the interest will keep accumulating. It is important to note that you should apply for a business loan for professional needs instead of a personal loan. Many lenders have an SME finance scheme that you can check.
A personal loan balance transfer is a great way to deal with financial challenges or to optimise your loan repayment. It is a great way to reduce your EMI burden and save money on interest charges. However, conducting your research and comparing interest rates and hidden charges from multiple lenders is crucial. Before deciding on a balance transfer, it’s essential to carefully assess your financial situation and consult a professional if required.