6 things you should look at before transferring your loan
Moneylife Digital Team 22 October 2012

Banks and finance companies are trying to gain business by offering lower interest rates. But you, as a borrower, need to look at other aspects as well, before moving your loan from one bank to another. Here are the six things you must consider


“You can transfer your high-cost home loan from any other bank to our bank and not only save on interest but also avail a higher loan amount” is the pitch from one of well-known banks. Most of us would definitely be tempted to go in for such a transfer. And why shouldn’t we? For the double benefit that is being provided, why would anybody not avail such an opportunity and that too when interest rates are so high? But stop and think. Is it all so simple? Should I actually go a step ahead to find the details? The answer is “yes, you should” and here is WHY and WHAT you should look at.
 

Technically called “takeover of loan”, transferring a loan means approaching a bank and asking it to issue a loan amount that is the outstanding amount with the current bank, repaying to the current bank and continuing the loan with the new bank. You will benefit from the lower interest rates or lower EMIs. And the bank? It gains new business. But, is the interest rate or a lesser EMI the only consideration? Not really. Here are six important factors that help you take the final decisions:
 

  • Calculate the total outflow
     

Although the new bank tries to attract you by reducing your monthly EMI and giving you a longer span to repay (increasing your tenure), you should be clear that such facilities increase the total amount you pay to the bank because the interest keeps on adding to the outstanding loan amount. If you are paying higher EMIs with your current bank, compare the total outgo for both banks and then take a decision. If you are not hard-pressed for cash, you should prefer staying with your bank, pay a larger EMI and finish off your loan as soon as possible to save all the money you would overpay, by opting for a longer tenure.
 

  • Study the processing fees and other allied charges
     

Take into consideration the processing fee, stamp duty, legal charges, valuation fee, technical charges and other allied charges that your new bank would charge and compare it with the benefit in terms of reduced interest rates. Is there a net benefit or a net loss?

 

For some banks, processing fee is a percentage of the total loan amount, while for others, it depends upon whether you are salaried or run a business. Still others have a fixed amount, uniform for all. If the bank calculates it on the basis of the outstanding amount, calculate it in rupee terms to find the cost. Also, your existing bank may jack up the costs of closure of accounts if it finds out that yours is a case of takeover. One of the complainants in an online complaint forum talks about how the bank officials refused his request to charge the interest rate on floating basis and insisted for recovery on a fixed rate of interest if the customer opted for takeover. They wanted the customer to pay at fixed interest rates, much higher than the floating rates applicable.
 

  • Collateral to outstanding ratio
     

If you have already repaid a huge chunk of your loan, do not offer the complete original collateral to your new bank. Why would you want to give a security which is double the amount of your loan outstanding? You would use it to take a separate loan instead, if the need arises. Offer your new bank a lesser amount of collateral. And if the bank still insists on the same, negotiate for lessening the interest rate further.
 

  • Charges and benefits of allied account requirements
     

When you take a loan, banks generally require you to open a savings account and route your money through that account. In case it does so, find out the charges applied and the facilities provided to you. For example, a Canara Bank education loan account does not accept EMIs through net banking. HDFC net banking allows you to make NEFT only 24-hours after you have submitted the request, the first time.

 

You should consider such provisions and your requirements before taking the final decision. Also, if your current bank is the one where you do all your banking, you become a premium customer for them; know a lot of their staff, are well-versed with their processes and may also be given services faster than others in queue. These softer aspects go a long way for ease of use and comfort banking, and should be thought about before foregoing them.
 

  • Terms and conditions governing loans
     

Before signing on the dotted line, you MUST read all terms and conditions of both banks. Some banks include buying insurance from specific company or depositing a certain amount in fixed deposits or opening a number of saving accounts for self as well as family, etc.  Read the “terms and conditions” part of the sanction letter and understand the pros and cons of such conditions.
 

  • Other attached frills on offer
     

Attracting customers by offering them frills with loans is a fad. Free credit card and personal accident insurance tops the list of offers. Before falling for these, analyse whether you really need them and ask for more information about terms and conditions governing them. A well-known friend was sold a ‘free’ credit card. He woke up the next year only to realise that the card was free only for one year. That is the extent of mis-selling being done.
 

Final take
 

Do not fall for an interest rate, or benefit, that is only marginally better. After all banks are into the business of lending. Why would one want to give you loans at a lower interest rate and lose profits when others in the market are earning a higher rate of interest? In your best interest, it is good to be suspicious and ask and consider all the issues mentioned above.

Comments
koderma.jharkhand
12 months ago
How can I transfer my loan to others bank
ronifrancis131
2 years ago
Hi i have take a bussiness loan in indian oversees bank but businuss fail small financial problem i have start a new job in idfc first bharat micro finace plshelp me my bussinuss loan and athor small loans monthly emis out of control the total loans are togethar,on one loan pls help me
NIRAJ P
3 years ago
Hi there. We have taken a LAP from Indusind bank . The initial loan is of 45L and subsequent top up is of 15 L. The EMI of initial is about 51k and that of top up is about 17k. The LAP is taken on our partnership firm name in which i myself am partner with my wife.Total EMI payment is about 68k pm.
Owing to some other financial commitment, side by side, which arose quite recently, we get over stretched unduly. Had the total EMI payout pm be about 50k, we are quite comfortable. Pl note that the loan tenure for both loan is 15 years out of which 2.3-2.5 years are already completed successfully without any hitch. The arrangement is needed to be arranged for 3 years only post which the add on financial liability, which came up recently, is getting over.
My request to you is just to confirm as follows.
1) can we ask bank to let us have the said flexibility of the said kind without any kind of side effects. ( we are ok if the tenure gets extended necessarily from here on if EMI amount is reduced )
2) does this incorporate any additional or fresh paper work other than an agreement for the extension with T & C
3) is it likely to affect our Cibil score in any way (Pl note- our financial score is fantastic as of now as we have completed most of our financial liabilities either in time or before time till date and we still intend to maintain the same. Had this add on liability have not arose we are quite ok with the current EMI ).

If positive, would like to suggest as to how do we approach bank with the said proposal so that it gets accepted with ease wi the bank like IndusInd.

Hoping your kind and worthy reply asap.
Rgds,
NIRAJ.

rahul sijariya
4 years ago
I had taken home loan Rs. 1700000/- from HDFC bank, ROI is there now 8.70, recently I received subsidy, now I am thinking for transferring my home loan with another bank, because ROI is 8.35 with another bank, and 12 EMI also waived off with Axis bank. Kindly advise me .
rahul sijariya
4 years ago
Sir had taken home loan Rs. 1700000/- from HDFC bank, ROI is there now 8.70, recently I received subsidy, now I am thinking for transferring my home loan with another bank, because ROI is 8.35 with another bank, and 12 EMI also waived off with Axis bank. Kindly advise me .
Nirav shah
Replied to rahul sijariya comment 3 years ago
Have u transferred your home loan yet,?
Chumi Sharon Lepcha
5 years ago
If I have already taken Loan from one bank is it possible to get it from some other bank
Anita Dsouza
5 years ago
Dear sir/ madam,

I had taken loan of rs 254000 from icici for the rate of interest 16.75% . I have completed 7 Emis of rs 6382 every month.
Now I would like to transfer my balance to HDFC foe the rate of interest 11.70%.

Could you please confirm if it's good to proceed ? Your prompt response will be highly appreciated to take the correct decision!
Please email me at [email protected]
Thank you,
laxmikant gaidhane
5 years ago
Dear Sir,

Please help me in below situation if possible from your side.

I had taken personal loan of Rs.2 Lacs from HDFC Bank in April 2016 @ROI of 14% and EMI of 6699.

Now there is outstanding principal of Rs.1.44 Lacs which I would like to reduce my monthly EMI because I am in very bad financial condition.
I wish to know is this a good decision What shall I do now.

If I Need to continue with HDFC how I can get my EMI reduced.

Please revert AEAP my mail id is [email protected]

Thanks,
Laxmikant
Sucheta Dalal
Replied to laxmikant gaidhane comment 3 years ago

If you are looking for guidance from Moneylife Foundation, please go to http://foundation.moneylife.in and send your query on the Credit Helpline. This is a 2012 article and you cannot get answers to queries here.
LoanVictim
5 years ago
Thanks a lot for this article. I want you to know your article has just saved one another typical middle-class indian by falling a prey in to hands of so called banks. They have almost deceived me with lower interest rate at 13% in case of balance transfer my personal loan from ICICI to Kotak or CiTi banks, but after went through this article apparently i saved around a lakh by not transferring my personal loan for the lower interest sake. Thank you again !
Rajesh Singh
6 years ago
at the time of loan the said there is no foreclosure amount. even today their web site claim that they don't change any foreclosure penalty. but today when I asked for foreclosure statement, they are charging 4% on outstanding. Can I or any one do anything to Bajaj finserv,
Swapnil Kulkarni
Replied to Rajesh Singh comment 6 years ago
Same case happened with me, is any legal action can be taken against Bajaj Finserv?
nagarajan
7 years ago
sir i have a dough that while i switching over my housing loan from hdfc limited to sbi bank. From sbi i got a check of rupees 12,000,00 arround (which was exactly the outstanding amount left with hdfc limited). actually i paid rupees 13,500 as emi every month to HDFC limited. But now i am paying 13000 rupees as emi per month(Usually bank in the period will debit interest component more when compared with principal component you know).
My dough is during first four year of repayment with hdfc bank , i have paid more interest component. i have some dough in this sir please help me
balaji
7 years ago
Dear Sir,
Please help me in below situation if possible from your side. I have taken personal loan 3.2L from ICICI Bank from august 2015 at that time ROI is 17.5%. Paid 6months EMI already. but now the HDFC Bank ROI is 12.5%. Is it beneficial to transfer the personal loan to HDFC Bank?. ICICI takes 2% service charge for preclosure.
ANADI NANDAN DAS
7 years ago
I AM A BORROWER OF HOUSE BUILDING LOAN WITH SBI @ INTEREST RATE 11.45% AND ALSO A BORROW A PERSONAL LOAN WITH AXIS BANK @ INTEREST RATE 17% FOR CONSTRUCTION OF MY WON DWELLING HOUSE. CAN I GET A LOAN AMOUNT OF RS. 18,00,000 LACS WITH LOWER % THAN EXISTING BANK FOR TRANSFER MY EXISTING LOANS. MY GROSS SALARY IS RS. 54000 AND NET SALARY IS RS. 45000. WORKING IN RITES LTD, CONTACT NUMBER IS +918252877769
Raghavendra Shetty
7 years ago
Dear Sir,

Now help me in below situation if possible from your side.

I had taken personal loan of Rs.3 Lacs from HDFC Bank in April 2014 @ROI of 14% and EMI of 8198.

Now there is outstanding principal of Rs.2 Lacs which I would like to transfer the same to kotak mahindra bank only to reduce my monthly EMI.

Kotak bank is ready provide the service with ROI of 13% and with tenure of 4 years with EMI of around 4K.

I wish to know is this a good decision to go ahead with balance transfer or should I continue with HDFC bank.

If I Need to continue with HDFC how I can get my EMI reduced.

My email id is [email protected]
sachit
7 years ago
great article
Free Helpline
Legal Credit
Feedback