Home Loan Balance Transfer Or Refinancing: Which Is Better
Finally landed the house of your dreams? Congratulations! But, is that Home Loan youve taken out bothering you? Worry not! We have the perfect solution for you to take care of those high EMIs. If youre looking for options like refinancing or balance transfer, it doesnt necessarily mean youre in a financial crisis. There could be other reasons too. Here are a few:
- Better rate of interest: Did you take that Home Loan in a hurry? Didnt research well enough before applying? Relax! You can still opt for a better loan. If youre getting a better rate of interest elsewhere, you must consider making a switch. By better, we mean a much lower interest rate as compared to the current one.
- To extend the loan tenure: If paying a good chunk of your salary every month is making you lose control over your finances, its time to look for an alternative. You could opt for a balance transfer or you could even look at refinancing your loan. Extending your loan tenure can significantly reduce the burden of EMIs.
- To reduce risk: In case you opted for a variable rate of interest earlier, now is the time to change that. You could choose a fixed rate of interest and stop worrying about changing market trends affecting your loan.
Any of these reasons good enough for you to consider a balance transfer or refinancing option? Before deciding which one to go with, lets analyse them both.
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How Fast Can I Repay My Loan Or Balance
The entire purpose of a balance transfer is to take advantage of the 0 per cent interest to pay down most or all of the transferred balance within that time.
With prevailing interest rates on credit cards in Singapore standing at about 28 per cent p.a., that makes a huge difference. This is about double or triple the rate on a typical personal loan!
Therefore, if you know you can pay off most or all your transferred balance within 6 to 12 months, then a balance transfer is the best choice for you. But if you know you cant, then it may be wiser to choose a personal loan.
What Is Home Loan Balance Transfer
Somewhat similar to refinancing, a Home Loan balance transfer basically implies that you choose to transfer the entire principal amount to another bank at a lower interest rate. The reason for opting for a balance transfer could be similar to opting for refinancing.
The good news is that most banks let you avail this facility, so you no longer need to stress over a high-interest rate. All you need to do is look for the best loan transfer option and avail it.
Additional Reading: Understand Home Loan Balance Transfer
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Should You Get A Balance Transfer Or A Personal Loan
If you still cannot decide between a balance transfer or a personal loan, consider the below factors:
Loan amount: If you are borrowing a large loan amount, it is safer to take out a personal loan. You can repay in fixed amounts over a longer time frame of between one and five years. If the amount is small, you can do a balance transfer to enjoy 0% interest rates. If you choose a balance transfer, you must make sure that you will have the cash to repay within the loan tenure of 3 to 12 months.
Your cash flow in the near future: Balance transfers usually have a tenure of 3 months, 6 months or 12 months. While you are allowed to pay a small minimum sum monthly during this repayment period, you must clear your debt within the end of it. This means that you need to be sure that you will have the money to repay within 3 to 12 months. Otherwise, the interest rate jumps back up to 25% to 30%.
If you are considering a personal loan for steady repayment of debt, here are some recommendations.
What Is A Good Credit Card Utilization Rate
Sometimes called your debt-to-credit ratio, your credit card utilization is the ratio of your overall outstanding balance to your overall credit card limit. For example, if you have a $10,000 limit across your credit cards and your total balances are $5,000 then your credit utilization rate is 50%
In general, when it comes to your credit score, the lower this ratio the better. Experts generally agree that 30% or lower is ideal, but according to FICO, those with near-perfect credit scores have ultra-low utilizations below 5%.
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What Are The Eligibility Criteria To Transfer Personal Loan To A New Lender
To transfer your personal loan from one bank to another, you have to meet certain eligibility criteria. The eligibility depends on your repayment capacity to repay the loan and your creditworthiness. Some of the common key criteria are as follows:
- You should have a running personal loan from another bank.
- You should have paid a minimum of 12 EMIs.
- Outstanding Personal Loan amount should be at least 50,000 for balance transfer process.
- A clean EMI payment track record of at least 12 months is required for transfer.
- CIBIL Score required as per bank policy, typically 650 and above.
The Equated Monthly Installment
One of the main reasons people transfer their balance to a new lender is the opportunity to pay lower EMI. However, you must always find out the tenure your new lender is offering. The extended tenure might lead to overall higher payment, which should be avoided. One can use a personal loan EMI calculator to manage your EMI.
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Which One Should You Choose
Since balance transfers and personal loans can sound similar in nature, this table highlights the key differences between the two. Keep in mind that both plans will require you to have a proof of income.
Essentially, your decision should depend on your ability to repay the sum borrowed. If you think you need a longer period of time to pay off the loan and are able to pay it all off within a fixed period of time by setting a good amount of money aside each month, then a personal loan is a more structured and disciplined way to pay off your outstanding balance. However, if you need to buy yourself more time, then the balance transfer plan may be a wise choice, although not for too long. It will simply allow you to stretch the repayment period for a few more months while you work out a solution.
Pros Of Debt Consolidation Loans
Loans can be large enough to consolidate multiple debts, including credit cards, other personal loans or medical bills.
Annual percentage rates may be low for those with good to excellent credit.
Some lenders will directly pay off your credit card, saving you that step.
Fixed rates and monthly payments are easier to budget and give you a payoff date.
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When Might A Personal Loan Be A Better Choice For You
A personal loan is likely the best choice for borrowers who arent certain of their ability to pay off their debt within a year, or who may be tempted to simply make the minimum payments on a balance transfer credit card. Personal loans can also be excellent ways to get a quick boost to your credit score, as its a more favorable form of debt than credit cards in the eyes of the FICO scoring formula.
And finally, personal loans can be the best choice if you have more than just credit card debt to pay for or consolidate. For example, if you have:
- $8,000 in credit card debt
- $7,000 in medical bills
- $10,000 in costs for new appliances for your kitchen
You can obtain a $25,000 personal loan to take care of all of these things at once.
How Does Personal Loan Balance Transfer Work
When you opt for a personal loan transfer, IDFC FIRST Bank will pay off your existing loan. If you have any other payment clause, then you might have to incur those charges, along with the processing fee for your new loan. Since you will save a lot with a lower rate of interest, these charges will not be hurt your wallet.
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Personal Loan Balance Transfer Helps Save Money Provides Access To More Credit And Could Increase Your Cibil Score
When you transfer the outstanding personal loan balance from one bank to another, you are using the personal loan balance transfer facility. It occurs when another bank offers a lower rate of interest on the remaining amount. The main reason for a personal loan transfer is to reduce the interest burden on the remaining amount. Hence, it is important that you carefully assess the personal loan balance transfer offer to save considerably on the total interest payable.
Beware The Grace Period
People who take advantage of these offers sometimes find themselves on the hook for unexpected interest charges. The problem is that transferring a balance means carrying a monthly balance. Carrying a monthly balance by not paying off the minimum amount due each montheven one with a 0% interest ratecan mean losing the cards introductory APR, its grace period and paying surprise interest on new purchases.
The grace period is the time between the end of the credit card billing cycle and the due date of the bill. During that period a cardholder doesn’t have to pay interest on new purchases. But the grace period only applies if a cardholder is carrying no balance on the card. What many consumers dont realize is that carrying a balance from a promotional balance transfer can affect the grace period if minimum payments aren’t made each month.
With no grace period, purchases on the new card after completing the balance transfer rack up interest charges. One good change: Since the , credit card companies can no longer apply payments to the lowest-interest balances first they now have to apply them to the highest-interest balances first.
Also bear in mind that many offers stipulate that the cardholder’s determines the actual number of months of 0% balance transfer in the introductory period.
The only way to get the grace period back on a credit card and stop paying interest is to pay off the entire balance transfer, as well as all new purchases.
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Getting The Most Out Of Your Balance Transfer Loan
If you’ve decided a balance transfer loan could be the right fit for you, the application process will look similar to a cash loan. The main difference is that youll add the creditors you want to pay as part of your To-Do List. Note that balance transfer loans cant be used to pay mortgages, auto loans, or student loans, but you should be able to add most other major creditors.
Once youve been approved, creditors typically get their money within a few days to a couple weeks, depending on how they receive the transfer money.
Don’t stop making your regular payments until the creditors confirm theyve received our paymentotherwise you may end up with late fees. If you make an extra payment before the transfer is completed, youll typically receive a refund for any overpayment.
Once you’re sure the transfer was received, contact your creditors directly to close your paid accounts.
Cant remember which creditors you paid with your balance transfer loan? Your Truth in Lending disclosure shows both the creditors and the amounts sent to each. It also shows how much of your loan went to your bank account.
Fixed Rates And Payment Schedule
Ulzheimer says that he favors personal loans for debt consolidation because the interest rate never changes and the loan has a fixed payoff date. With predictable payments, a debt consolidation loan can help with budgeting. If youre not managing a credit card absolutely perfectly, then you may end up paying more for a longer time than you would have with a personal loan.
Steve Repak, a North Carolina-based certified financial planner and author of 6 Week Money Challenge, says that he favors a balance transfer because its more flexible than a personal loan.
What if you lose your job or what if something comes up, some type of financial emergency where you cant make that $500 payment? Repak says. A 0 percent transfer might give you some flexibility even though it might cost you more. With a fixed payment, youre kind of stuck with that.
As youre deciding how to consolidate debt, look at your situation to see which option makes sense for you. If you need help with budgeting and want fixed payments, a personal loan is a good option. If youd prefer flexibility, a balance transfer credit card may be right for you.
Why its important: Paying your debt off depends on finding a repayment strategy that you can stick with. Consider whether youd rather have the certainty of fixed monthly payments with a personal loan or the flexibility of a balance transfer credit card.
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Con: You Might Not Qualify For The Card
Even the best balance transfer cards are still credit cards, after all, and if you have bad credit, you might not qualify for the card you want or a rate that makes a balance transfer card worth it. Be diligent and do the math if you have a less-than-stellar credit score and when youre at it, be sure to check out ways to bring your credit score back up.
What Is The Eligibility Criteria To Opt For An Instant Personal Loan Transfer
The criteria for a transfer is not quite different from that of a personal loan. Some of the main factors taken into consideration while evaluating your candidature include:
- The applicant should be between 21 to 61 years of age.
- The applicant should be a salaried employee of a public or private company having a basic minimum turnover as per the lenders policies.
- For applicants from Mumbai or Delhi, the monthly salary should be at least Rs 25,000. For applicants from any other place in India, the monthly salary should be at least Rs 20,000
- You should possess a minimum of 6 months of work experience in the company you are presently working for, and an overall work experience of at least 1 year.
- A CIBIL score of 750 and above can help in obtaining a transfer without hassle. If your CIBIL score is lower, you dont need to worry. There are various ways in which you can improve your CIBIL score.
You can use our free personal loan balance transfer calculator and enter the details requested such as your age, location, monthly obligations, interest rate tenure of the loan, monthly income etc. to estimate the approximate loan amount you are eligible for as well as much money you could save in the form of EMIs by opting for a personal loan balance transfer. If you do decide to opt for a transfer, make sure to repay your debts on time and take one step towards releasing yourself from the mountain of debt.
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Are Personal Loans A Good Option
Personal loans are a strong option in certain scenarios. The fixed interest rate, set repayment schedule, and long repayment period carry advantages for many consumers.
Balance transfer promotions are a fantastic opportunity to pay down debt, but you must commit to paying significantly more than the minimum payment each month to be successful.
Unlike promotional balance transfer rates, personal loans feature a fixed rate that doesnt expire after the initial period. Unless youre sure you can pay off the balance before the end of the promotional period, the overall cost of a personal loan may be lower than that of a credit card balance transfer.
Personal loans can often improve your credit score. In most cases, personal loan debt has a more favorable impact on your than credit card debt. Unlike credit cards, you can also get pre-approved for most personal loans without a hard inquiry. A soft inquiry doesnt count against your credit.
In addition, personal loans can be a better option if you have several types of debt youd like to consolidate or even combine with another project. Lets say you have the following outstanding debt and upcoming expenses:
- $6,000 in credit card debt
- $8,000 in medical debt
- $4,000 for a new deck for your home
- $7,000 in college tuition and costs for your child.
With a $25,000 loan, you could wrap all of these into one monthly payment!
Eligibility Criteria For A Personal Loan Balance Transfer
The eligibility criteria for a personal loan balance transfer is the same as for a personal loan and varies from lender to lender. However, the basic eligibility criteria that most lenders look for, have been given below:
|Who Can Avail|
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Features Of Personal Loan Balance Transfer
Special features of this facility and process are :
- Low rate of interest: With a balance transfer facility, you can avail your existing personal loan with an affordable interest rate. Thereby, you can always reduce the burden of an existing personal loan even when you have availed it at a higher interest rate previously.
- Flexible repayment tenure: Transferring a personal loan to another bank not only helps you in availing a lower personal loan rate but also helps you in restructuring the repayment tenure. By extending the loan repayment tenure, you can easily reduce your personal loan burden, as the EMI is split over a number of years. Similarly, you can get rid of the personal loan in a shorter period by reducing the loan tenure.
- Top-up facility: This facility is accompanied by a top-up facility, wherein you can get your loan amount revised in need of extra credit. Various personal loan lenders provide the top-up facility at concessional rates if you avail of the balance transfer facility.
- Minimal documentation: The personal loan refinance involves minimal documentation. This is because the KYC and verification of the documentation have been done by the previous lender already.