Personal Loan Balance Transfer: Your Financial Lifeboat

Personal loans are a great and dependable source of financial assistance when you need funds for various purposes, be it a medical emergency, home renovation, or debt consolidation. But what should you do if you secure a better deal elsewhere? This is where the concept of ‘personal loan balance transfer’ comes into play. 

A personal loan balance transfer, also known as a loan refinance, is a process where you transfer your existing personal loan from one lender to another. The primary objective is to secure better terms, such as a lower interest rate, reduced monthly payments, or improved loan tenure.

Steps to Perform a Personal Loan Balance Transfer

In the world of credit, personal loan balance transfer is a simple process that takes but a few steps:

Step 1- Evaluate Your Current Loan: Begin by assessing your current personal loan, including the interest rate, outstanding balance, and remaining tenure. This will help you understand your existing financial commitment.

Step 2- Find New Loans: Explore the offerings of various lenders in the market. Look for lower interest rates, favourable loan terms, and any special promotions or benefits they offer for balance transfers.

Step 3- Apply with the New Lender: Once you’ve selected a suitable lender, submit your loan application along with the required documents. The new lender will evaluate your application, including your creditworthiness.

Step 4- Sanction and Disbursement: If your application is approved, the new lender will sanction the loan and disburse the amount needed to settle your existing loan with the previous lender.

Step 5- Repayment to the Old Lender: The new lender will clear the outstanding balance of your old loan directly. Ensure that all dues are settled with your previous lender to avoid any complications.

Step 6- Continue Repayments: Start repaying the new loan as per the agreed terms. Enjoy the benefits of lower interest rates and reduced EMIs.

Personal Loan Balance Transfer in India

Here are a few of the most popular banks and NBFCs providing personal loan balance transfer at favourable rates:

Lender Interest Rate (per annum)
From 10.50%
From 10.99%
From 10.49%

How To Calculate Your Personal Loan Balance Transfer

Step 1: Gather Information

Current Loan Details:

  • Outstanding Loan Amount
  • Current Interest Rate
  • Remaining Loan Tenure
  • Monthly EMI

New Loan Offer:

  • Interest Rate offered by the new lender
  • Processing Fees (if any)
  • Prepayment Charges from the current lender (if applicable)

Step 2: Calculate Savings

  1. Interest Savings:

Calculate the interest paid over the remaining tenure of the current loan and compare it with the interest payable on the new loan.

  • Interest Paid on Current Loan = (Outstanding Loan Amount) x (Current Interest Rate) x (Remaining Tenure in months)
  • Interest Payable on New Loan = (Outstanding Loan Amount) x (New Interest Rate) x (Remaining Tenure in months)
  • Interest Savings = Interest Paid on Current Loan – Interest Payable on New Loan
  • EMI Savings:

Calculate the potential reduction in monthly EMIs with the new loan.

  • Current Monthly EMI – New Monthly EMI = EMI Savings

Step 3: Consider Costs

Processing Fees:

If the new lender charges processing fees, subtract this amount from the calculated interest and EMI savings.

  • Total Savings after Processing Fees = Interest Savings + EMI Savings – Processing Fees
  1. Prepayment Charges:

If your current lender imposes prepayment charges for closing the loan early, subtract this amount from the total savings after processing fees.

  • Net Savings after Prepayment Charges = Total Savings after Processing Fees – Prepayment Charges

Example Calculation:

Let’s consider an example:

Parameter Current Loan New Loan
Outstanding Loan Amount (Rs.)
Current Interest Rate (%)
Remaining Tenure (months)
Monthly EMI (Rs.)
Interest Paid on Current Loan (Rs.)
Interest Payable on New Loan (Rs.)
Interest Savings (Rs.)
Monthly EMI Savings (Rs.)

Benefits of Personal Loan Balance Transfer

As you may have noticed, personal loan balance transfer can be very beneficial if you find any alternative lender that is providing attractive loan terms. Here are some of the many benefits a personal loan balance transfer provider:

Lower Interest Rates: One of the primary reasons for opting for a balance transfer is the opportunity to secure a loan with a lower interest rate. A reduced interest rate can lead to significant savings over the loan tenure.

Reduced EMI Burden: Lower interest rates can result in reduced equated monthly instalments (EMIs), making it easier to manage your monthly budget.

Improved Loan Tenure: In some cases, you may choose to extend the loan tenure during a balance transfer, which can further reduce the EMI burden, providing greater flexibility in repayment.

Consolidate Multiple Loans: If you have multiple personal loans or high-interest debts, a balance transfer allows you to consolidate them into a single loan, simplifying your finances.

Better Customer Service: If you’re dissatisfied with the customer service of your current lender, a balance transfer provides an opportunity to switch to a lender with better service and support.

To Conclude

A personal loan balance transfer can be a financial lifesaver, providing an opportunity to reduce interest rates, lower EMIs, and simplify your financial commitments. However, it’s crucial to assess the costs involved and choose a reputable lender to maximise the benefits. When executed wisely, a balance transfer can be a smart financial move, allowing you to regain control of your finances and achieve your goals with greater ease.

Amit Arora


I am a seasoned retail banker with over 21 years of global experience across business, risk and digital. In my last assignment as Global Head Digital Capabilities, I drove the largest change initiative in the bank to deliver the end-to-end digital program with over US$1 billion in planned investment. Prior to that, as COO for Group Retail Products & Digital, I implemented a risk management framework for retail banking across the group.
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