Personal loans are the best tools when it comes to addressing your emergency financial needs. Sometimes the financial need is so urgent that end up applying for an online loan from a financial institution at a very high rate of interest. At times, this might also happen because of a lack of awareness or having a low credit score at the time of applying for the loan. No matter what your reason is, if you feel that you are paying a high-interest rate on your personal loan then there is a way out. You can transfer this loan, reduce the burden of interest, and minimize your EMIs by switching to a new lender.
With refinancing or transferring the balance of your loan, you may swap your current loan for a new one that can have a reduced interest rate or repayment schedule. If interest rates have decreased or are less than your current rate, or if you need to prolong your repayment period, refinancing can be a wise choice.
Well, today we are going to give you extensive information on how you can refinance your loan you took from a personal loan app to a different lender and save yourself from paying a high rate of interest that too for a longer period.
What Is Loan Refinancing and Balance Transfer of a Personal Loan?
Loan refinancing and balance transfer are often used synonymously. However, both these terms have a thin line of difference as they are both associated with changing your current loan plan to a new one. To get a better idea we will provide you with a brief explanation of both.
Refinancing a personal loan is applying for a new loan, either from the same lender or a different one, and using the amount you get to pay off the previous one. You will start making payments on your new loan with a new interest rate and conditions as soon as the procedure is finished.
While on the other hand, in a balance transfer, a customer transfers their whole online loan amount from one bank to another using a balance transfer process. Typically, it occurs when the new bank offers a cheaper interest rate on the remaining loan balance. Therefore, the main goal of a Personal Loan transfer is to lessen the total amount of debt.
You can select any of these options to lessen your interest payment burden based on your needs.
Advantages of Refinancing your loan
Here are a few benefits of refinancing your loan.
- Better Rate of Interest: You might be able to save money on interest if rates have decreased or if your credit score has increased.
- Payment steadiness: If you are converting from a variable rate to a fixed one, refinancing might offer payment consistency.
- Faster loan repayment: You can refinance a personal loan to a shorter term if you’re willing to make larger monthly payments and want to pay off your debts more quickly. The additional benefit of this is that you will pay less interest altogether.
- Extended repayment terms: Increasing the terms of your loan repayment can lower your monthly payment, making it easier for you to manage your payments if you are having trouble making them on time.
Advantages of Transferring Your Loan
Now, have a look at the advantages of transferring your loan:
- Enhanced Interest Rates: The very first benefit of a Personal Loan Balance Transfer Facility is a reduction in the rate of interest, which decreases the borrower’s interest burden through reduced EMIs. The interest rate on the loan transfer will often be cheaper with the new lender.
- Additional Features: This advantage is based on your history of on-time payments, your CIBIL score, and the diverse properties of your income. Some lenders could provide more opulent features like no processing costs, a cheaper loan rate, waiving the last EMI, and so on.
- Loan Facility Expansion: Several banks provide the best option in addition to personal loan transfers. At competitive and reduced interest rates, several banks and financial institutions provide new loans and top-up possibilities for personal loans.
- Favorable Interest Rate: You might be able to save funds on interest if rates are lower or if your credit score has increased.
Which Is a Better Option Refinancing or Balance Transfer?
Well, I would say that refinancing is a better alternative for the initial years of your loan as the interest component of your EMIs is at its peak during that time. The balance transfer method gives you the same benefits at a lower interest rate.
For better distinction, you can refer to the below-given questions:
- Check the new bank interest and your old bank interest.
- Find out how much you will stand to gain by doing a cost-benefit analysis.
- Is the EMI for a loan for the same amount less than the one you have now?
Personal loan refinancing or balance transfer is the ideal solution when it comes to reducing the burden of the loan repayment amount. Initially, due to lack of availability, you might have applied for your personal loan from any random personal loan app. However, as soon as the emergency events pass, you can begin to feel the weight of the high-interest rate and extended payback time.
We advise you to pay close attention to this article if you are still caught in a debt cycle and are urgently trying to discover a way out.