Terms such as ‘loan refinancing’ and ‘balance transfer’ are often used synonymously. While the benefits of these two facilities are similar, they have some fundamental differences. In simple words, if an existing personal loan borrower wants to revise the loan terms and repay the outstanding amount accordingly, the process will be personal loan refinancing.
On the other hand, transferring the outstanding loan amount to a new lender for better terms will be a personal loan balance transfer.
Although the process to opt for any of these facilities is almost same, take a look at loan refinancing first.
Personal loan refinancing entails only a few simple steps. They are:
A personal loan refinance is approved only if the applicant has a spotless repayment history and a good credit score. Besides, other requisites such as monthly income and FOIR are also assessed before approving this request. Individuals fulfilling most of these parameters can proceed with refinancing.
The next step comprises estimating the cost of refinancing. Typically, lenders charge a certain amount while sanctioning a loan refinance application. Therefore, before deciding, know whether the cost of refinancing is putting the entire proposition at a loss. In this regard, also consider the part-prepayment fees.
Individuals with a spotless repayment history can contact their existing lender before approaching a new one. Most likely, with such a credit profile, existing lenders might agree to revise the loan terms with lower interest rates and better services.
Moreover, since there is no need to check personal loan eligibility compliance afresh, the entire process is much more streamlined.
On finding a suitable deal, apply for that personal loan refinancing. Fill up an application form and submit a few documents, if necessary to complete the process.
After the application is approved, continue repaying the existing loan amount as per the new terms.
However, choosing the right time to refinance a loan also plays a crucial loan in maximising savings.
Typically, a personal loan EMI comprises both the principal and interest components. However, in the initial phase of the repayment tenor, borrowers repay the interest component in majority and the principal on the latter part.
Therefore, financial experts advise personal loan refinancing within the first half of repayment tenor. Doing so helps save on interest payment to a great extent. Opting for a loan refinance towards the end of tenor does not allow much scope for savings on interest. In such cases, refinancing may not be beneficial, considering the charges and fees involved.
Following are the noted benefits of personal loan refinancing:
A major benefit of opting for a personal loan refinancing is accessing lower interest rates on personal loan. It brings down the interest payable or borrowing cost to the minimum. Resultantly, personal loan EMIs get cheaper. Individuals can also switch from floating rates to fixed rates without hassle.
With a personal loan refinancing, extend or shorten your loan tenor to repay the outstanding balance conveniently. To make an informed decision, use a personal loan EMI calculator online.
Since a loan refinancing is done on the existing loan, it does not hurt the borrower’s credit score as it would have affected while availing of a new loan. During refinancing, credit score may dip a little, temporarily due to hard inquires. However, with regular repayment, this score recovers in no time.
All these benefits are also available with a personal loan balance transfer. In addition, you can avail of a top up personal loan while opting for this facility.
With Bajaj Finserv, opt for both personal loan refinancing or balance transfer to enjoy competitive interest rates and better terms.