What Is The Role Of Personal Loan Interest Rate And Balance Transfer?

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What Is The Role Of Personal Loan Interest Rate And Balance Transfer?

Personal Loan Balance Transfer 

A personal loan balance transfer is a method of moving from one lender to another through the current loan balance. 

Advantages of Personal Loan Balance Transfer 

  • Longer Tenure of Repayment 

A borrower may benefit from improved loan repayment tenure by moving the loan. Higher tenures will reduce the burden of a borrower and make it more economical to repay the loan.

  • Better characteristics 

Choosing a personal loan refinancing option will allow you to get better offers from the new lender, which could be in the form of a lower interest rate, low processing cost, etc. 

Steps of Personal Loan Balance Transfer 

Take a look at the process below if you want to go for a personal loan balance transfer:

  • Check the latest interest rate that you can get and calculate the interest savings on your loan. 
  • Calculate the estimated loan conversion rate, including different fees. 
  • Calculate the net advantages and determine whether or not you want to move your loan. 
  • Compare and verify the interest rate offered, the eligibility for your loan number, and your entire loan process.
  • If you want to go through with the balance transfer, apply for an existing lender’s NOC and foreclosure letter. 
  • Apply to the new lender for a loan and submit the loan documents with a full repayment record. 
  • Obtain a letter of sanction and conduct the revised loan agreement with the new creditor.
  • Take the disbursement from the new lender in favor of an existing lender via cheque/ demand draft and deposit the same with the current lender. 
  • The current lender will cancel all the cheques and ECS upon receipt of a loan outstanding and close your loan account.

Personal Loan Balance Transfer Eligibility Requirements 

Generally speaking, the eligibility conditions for a personal loan balance transfer remains the same as a personal loan and differ from lender to lender. Nonetheless, the standard eligibility conditions that most lenders are looking for are listed below:

  • Age: The applicant’s age at the time of the personal loan application should be a minimum of 21 years and a maximum of 60 years. 
  • Working experience: A borrower should have a minimum of 2 years of working experience and must work for a minimum of 1 year in the current organization.
  • Employment: A borrower should operate with a private or public sector organization such as national, state, or local authorities, either as a self-employed or as a salaried person.
  • Income: The applicant must have Rs. 15,000 minimum net income. If he/she resides in Delhi, Mumbai, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad, Kolkata, and Cochin city metro, the income should be at least Rs. 20,000 per month.

Personal Loan Interest Rate

There are two types of Interest Rate

  • Fixed interest rate: If you opt for a fixed interest rate personal loan, then you would have to pay the same interest over the tenure of the loan repayment. For example, if an individual has taken out a 4-year personal loan, the interest rate given by the bank will remain the same throughout tenure.
  • Floating interest rate: The floating or variable interest rate, on the other hand, is aligned with the marginal cost of the loan rate or the MCLR, resulting in the adjustable interest rate as adjusted by the MCLR. 

If you intend to take advantage of a personal loan, it is necessary to consider the variables that can affect the interest rate. Two individuals can get a different rate of interest on a personal loan from the same lender, depending on the following factors: 

  • Credit score: A strong credit score not only allows you to take advantage of a personal loan but also helps to reduce the interest rate. A credit score is a 3-digit number that indicates how the credit card repayments and personal loans have been treated in the past. Every time you repay the EMI on time, points are added to the credit score, and defaults or late EMI payments narrow down the credit score by a few points. It is important to maintain a good credit score of 750 or above, as it reflects your creditworthiness and presents you as a reliable individual in consideration of personal loans by the lenders. A lower interest rate may therefore be given to you.
  • Income: Since personal loans are collateral-free loans and do not require any protection against them and the lenders are assured of a high monthly income. Almost every lender assumes that it would be possible for high-income borrowers to repay the loan on time, thereby giving them a lower interest rate.
  • Nature of employment: Applicants can be given varying interest rates by personal loan lenders depending on whether they are self-employed or salaried. 
  • Age: The age of the loan seeker may also affect the lender’s offered interest rate. A higher interest rate can be paid to people who are approaching the retirement age (like 58 years).
  • Employer Details: You are more likely to crack a decent deal on your loan rate of interest if you work for a trustworthy company. This occurs because providers of loans assume that such borrowers have a steady job and constant income and will thus be able to repay the EMIs on time.
  • The bank is more likely to give you a personal loan with a low-interest rate or processing charge if you have an income or a savings account with the bank and share a strong credit repayment history.

Tips for using low-interest Personal Loans 

  • Improve Credit Score: It is critical to maintain a good credit score of 750 or above as it represents your creditworthiness, as described above. A strong credit score convinces the lenders, at a low-interest rate, to give you a personal loan. You would have to make some extra efforts to raise it if your credit score is below 750. The best ways to do this is  to keep paying the EMIs of current loans and credit cards on time and to keep monitoring for any defaults in the credit report.
  • Pay Current Debts: By dividing the monthly debts by one’s monthly income, the DTI (Debt to Income Ratio) is calculated. Lenders often take DTI into account to assess the willingness of the borrower to handle the monthly EMIs along with the other expenses. If your DTI is higher than 50%, you may not be eligible for a loan or a high-interest rate may be paid by the lender. It is often best to pay all the current debts before applying for a personal loan to narrow down the DTI ratio. In the end, this will allow you to get a low-interest rate.
  • Compare the offerings available: Don’t go for the first offer of personal loans you get or see. It is always useful to compare interest rates offered on a personal loan by different lenders and then go for the low-interest rate offered by the lender.
  • Apply with a co-applicant: If your credit score is not good or below 750, your loan could be sanctioned by lenders but at a high rate of interest. In such conditions, a personal loan with a co-application having a strong credit score of 750 or higher may be applied for. The financial records of both the co-applicant and you will be treated in this way, and you will get a low-interest rate.
  • Consider Pre-Approved offers: After considering the repayment history, lenders can give you a pre-approved loan. A lower interest rate will be given when such an offer comes from the lender since every factor has already been evaluated by the lender. So, keep looking for a personal loan deal that is pre-approved.

Conclusion:

Lastly, many things play important role in loan processing. The above two mentioned are among the important terms and features. It is always advised to do in-depth research and compare the available options before applying for a Personal loan.

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