Why Balance Transfer Makes Sense

BT or Balance Transfer is a financial service in which you transfer your outstanding principal amount of your current loan to another bank. At this second bank, you get added benefits like lower interest rate, more time to repay the loan, and the initial 0-interest year. All of these benefits are significant, and can’t be ignored if you are having problems paying back your loan.

People take Balance Transfer in the hope that they get better interest rates and better features. The bank to whom you are transferring is gaining too in the form of a new customer or a new business. Thus, everybody wins! This is why banks use Balance Transfer to attract additional customers. And by the way, there is Balance Transfer for all types of loans. All banks can give you this facility.

As you may have seen now that a Balance Transfer is very useful and lucrative. After all, it not just makes it easier for you to repay a loan, but since the interest rate is lower, you also save more money in the long run. However, even now very few people take this service or facility since few people know about this service.

One should try to get a BT at least once when having a loan, but don’t get multiple BTs one after another. That being said, it is obvious now why you may want this facility. When the interest rate is lower, you save money, enabling you to use the money either in other areas of your life or in paying back the loan faster. By the way, your income level will change over the years, which is another way you can repay the loan faster. To conclude, a Balance Transfer is a fantastic way to reexamine your current debt, to get some instances of the credit changed like interest and duration, and ultimately to repay faster and save money.

More good news: Most banks also allow one top-up loan along with the BT. This is more easily available for home loans and personal loans. However, it is advised against going for the top up loan unless you really need to. You want to decrease your debt, not increase it.

Why it makes sense

So that was all about the benefits of a Balance Transfer. But how does it make sense for you? Is the prospect of getting lower interest and saving money all there is to top it? Is there nothing more? 

Let’s say that you have taken a loan for Rs. 250000 for repayment tenure of 3 years at the agreed-on interest rate of 20%. This makes your monthly EMI Rs. 9291. In total, the interest you’ll be paying is Rs. 84,772. If you go for a BT after a year, the interest rate is 14%. The balance of the loan to be paid is Rs. 1, 76,299 and can be rounded off to Rs. 180000. This means you’ll have to pay less monthly EMIs: Rs . 8462 and the total interest payable shall become Rs. 27,416. You already paid Rs. 44039, and this just Rs. 40433 remains to be paid. However due to the Balance Transfer, your total interest is now Rs. 27,416 and you are saving Rs. 13000.

To get a good BT, you may need to shop around a bit. Browse through what the different banks are offering.