If your current loan is at a high rate of interest and you want to close it off, you can avail a balance transfer and switch to a lower interest rate. Balance transfer is primarily used to save money by lowering the cost of your credit. The eligibility criteria for balance transfer is very similar to that required for a normal credit i.e. the credit health of the borrower and the repayment capacity of the borrower.
A Balance Transfer loan is treated as a fresh loan and therefore all the necessary documents required for home loan like the KYC documents and the current income statement should be submitted along with application for home loan similar to application for personal loan.
It can be divided in to three main categories:
- EMIs: In this case the balance transfer loan amount is converted into EMIs and the customer has to pay a fixed amount of the outstanding balance for a fixed period of time.
- Regular transfer with low rates for fixed period: A lower rate of interest is charged on the outstanding dues of the new loan. These rates are applicable for a fixed duration only. At the end of a specific period, regular finance/interest charges may apply.
- Regular transfer with perpetually low interest rates: In this case also, a lower rate of interest is charged on the new loan but it is applicable till the time the transfer amount is paid.
Processing fees between 1-3% of the balance transfer loan amount is charged in all the three cases. Prepayment charges are applicable in the first case while it is absent in the last two cases.