Imagine a scenario in which you were in an emergency and need financial assistance. You didn’t have a good credit score, so you opted for a personal loan at a higher interest rate. A year has gone by, and now you are in a better financial position to wrap up your personal loan. Your credit score has considerably improved, too, in such a scenario, it is suggested that you look for other lenders that are willing to offer personal loans at a lower interest rate and better lending offers. This is called personal refinance.
From reducing your monthly EMIs to avail loan at a lower interest rate, refinancing your personal loan is chosen by borrowers for various reasons. How is the process done, and should you do it in the first place? Use an online EMI calculator such as navi loan EMI calculator to see whether you will be saving on your monthly income or not. Continue to read the blog to learn how to go ahead about it.
What is a personal loan refinance?
Taking out a new loan and utilizing the funds to settle an old loan is known as refinancing a personal loan. A personal loan can be refinanced at any time, but it is most beneficial for borrowers who have improved their credit score considerably in comparison to the first time they applied for a personal loan. It is also a better option for those who want to extend their loan tenure in order to lower their monthly payments. The main goal of a personal Loan transfer is to lessen the total amount of debt. However, keep one thing in your mind refinancing frequently could cause your credit score to drop.
To reduce the total interest paid, carefully evaluate the personal loan balance transfer offers and select the best one. Use navi loan EMI calculator if needed to calculate your savings. The borrower is not required to furnish any collateral as part of the loan transfer process. Foreclosure fees, processing fees, and stamp duty on the loan agreement (if applicable) are a few small fees that might be assessed for the personal loan balance transfer.
How does transferring a personal loan balance work?
In most cases, when a personal loan is transferred from one bank to another, the new bank pays off the old loan. You could have to pay prepayment those fees if your current loan has a prepayment clause. Use Personal loan EMI calculator or navi loan EMI calculator to see how much you would be saving on your interest rate.
What is the process of refinancing a personal loan?
Lenders have different procedures for refinancing loans. However, is most similar to the standard loan application process. Here are the steps to refinance your personal loan
- Check your credit score
The first step in refinancing a personal loan is to look up your credit score. There are many free online portals where you can quickly check your credit score. A higher score, however, will open up more favourable terms, such as low-interest rates and better loan terms. In case your credit score isn’t high for the particular lender, work on it. Reduce your credit utilization rate, lower your debt-to-income ratio and work on increasing your income.
- Shop for terms
Research online lenders that offer personal loan refinancing. If your credit score is strong, the lender will be willing to refinance your debt. Firstly, you need to understand how much you should borrow and, for the same, consult with your lender. They will be able to tell you how much is still owed on your loan. To compare interest rates and other loan terms, research online, use navi loan EMI calculator and speak with them personally, too.
- Submit a loan application and wait for it to be accepted
Once you’ve decided on a lender, compile all the required information and documentation required by the bank to finish your application. Your most recent tax returns and payment slips will probably be included, although the exact application criteria will differ by lender. Expect to wait a few hours to a few weeks after submitting your loan application for approval.
- Pay off the original loan
When your application gets accepted, use the proceeds of the new loan to settle the rest of the balance of your original loan. You can also be liable for a prepayment penalty depending on the conditions of your initial loan. In order to avoid any additional costs or penalties, wait until the lender confirms that your account has been terminated.
- Make a plan on how you are going to settle payment on the new loan
Make regular payments on the new loan after disbursement and repayment of your initial loan. To avoid having to remember to pay each month, if at all possible, enrol in automatic payments. Regular, on-time payments might help you repair any damage to your credit score that occurred throughout the application process.
Benefits of transferring a personal loan balance
Better rate of Interest: The first benefit of a personal loan balance transfer facility is a reduction in the rate of interest, which decreases the borrower’s interest burden through reduced EMIs. The interest rate on the loan transfer will typically be lower with the new lender. Use personal loan EMI calculator once to see how much you will be saving on it.
Loan with an Extended Duration: The existing personal loan’s tenure may be negotiated when it is transferred from one bank to another. Depending on your needs, you can request an extension or reduction in the loan’s repayment time. Accordingly, there is a rise or decrease in the EMI and interest burden.
Better features: Some lenders might offer zero processing fees, a lower rate of interest, waiving off the last EMI and so on due to your better credit score. Your eligibility for this benefit is based on your payment history, CIBIL score, etc. Some of the lenders also offer top-up facilities at lower interest rates.
When should I opt for refinancing my personal loan?
Borrowers typically have the option to refinance a personal loan as soon as they begin making payments. However, there are some situations where it makes sense and benefits the borrower more to refinance the loan. If you are getting a cheaper interest rate because of an improved credit rating and want to decrease our monthly outgo, personal loan refinancing is a better option for you. Use the personal loan emi calculator to check how much you will be saving on your monthly outgo.
Personal refinance is considered a great option if opted in the early years of your loan. It is because the interesting part in your EMIs is the highest in your initial period. You can use personal loan EMI calculator to find out what to expect exactly. Navi loan EMI calculator will make it easier for you to estimate your monthly savings and compare multiple loans when looking for the most favourable terms.