‘Things You Must do’ before transferring a loan to other banks
Its often luring that other bank EMIs are lower than your current bank’s EMI and why not opt for it, when it will reduce your monthly burden.
However, this is not complete reality rather this is just half of the truth of your re-financing option. Before transferring a loan to another bank, there are a few things that you must consider and take note of.
Do your research
One must ask himself why this other bank is offering me lower interest rates and higher loan amount before opting for it?
Most of this comes from lower demand for loans from that bank, which is why he is offering lower interest rates. Then it may also be that your bank is charging you interest on a fixed rate.
However, as per applicable fiscal policies, the RBI has reduced the lending rates. In such a case, one can always go to their existing bank and negotiate their interest amounts.
Also, before transferring your loan, you must consider the pre-closure charges with your current bank and the loan application charges with your new bank.
Foreclosure charges are often very high with most of the banks and may result in you into paying off more than what you are already paying. This fee is an extra burden for transferring your loan to a new bank.
Consider your total outflow of cash with loan transfer
One must calculate the total outflow of cash with his new bank and that with its existing bank. It may be that new bank has increased the tenure of your loan and hence you get lower EMI.
However, you end up paying much more amount in interest than your existing bank. Transfer of your loan means that your new bank pays off your outstanding amount to your existing bank and starts off the new loan EMI for you.
Often this results in a more expensive loan than your existing loan. Just to reduce your EMIs, it’s not a wise decision to take.
In case you don’t have an issue with cash flow, you must try to complete your loan with your existing bank and enjoy your debt-free life.
Transferring your loan with a new bank with lower EMI would just mean you getting trapped into a never-ending cycle of loans.
Consider your collateral before going to a new bank
One must consider his collateral with a new bank before transferring his loan.
With the previous bank, your loan amount was high, so you were required to pledge whole collateral with them.
However, with your new bank the loan amount is not the same then why should one be pledging the whole collateral.
You can always take rest of the collateral to buy new loans rather than pledging it whole with a new bank.
Read the terms and conditions carefully
One must read his terms and conditions carefully before signing off the new loan amount with his new bank.
There could be hidden clauses which you might come to know at a later stage.
Sometimes a lower interest loan comes with its own cost like buying of insurance with them or their allies or opens an account with them with some minimum deposit amount.
This would be an extra burden on your loan fended shoulders. Or they may offer you a free credit card which has its own hidden cost like its free only when you spend it’stain amount on it or it’s free only for some amount of time and then the prevailing charges are applicable.
Remember one thing, “Nothing is for free in this world”. So look out for those hidden costs that come with this luring option.
Don’t forget to negotiate before transferring a loan
Either you go with your new bank or remain with your existing bank, don’t forget to take upon this opportunity to negotiate over making your loan cheaper. You can opt to negotiate with your existing