Personal loans play a very important role when people are hit by financial problems. Personals loans are unsecured loans i.e. borrowers don’t need to offer collateral to get funds. Hence, loan application and documentation process are very short and simple. Personal loans are disbursed immediately. Although personal loans come handy to rescue borrowers in dire straits, this patronage turns nightmare when borrowers struggle to get rid of the debt. High EMIs and higher interest rates give borrowers sleepless nights. As a result, they may default on EMIs. Failing to make timely payment will take toll on their credit score and you they not be able to get loans or credit cards in the future.
Personal loan refinancing
Refinancing personal loans can be a big relief for people struggling with higher personal loan interest rates and EMI burden. Personal loan refinancing means paying off an existing loan with a new loan that has a lower interest rate or EMI. Personal loan refinancing allows borrowers to repay their debts in a more cost-effective manner without putting a strain on their monthly budget.
Through personal loan refinancing, borrowers can transfer their debt from existing personal loans to a new personal loan with lower interest rates. Personal loan refinancing covers the total outstanding loan amount which a borrower has left in their existing loan to repay. Personal loan refinancing has many other benefits like lower interest rates, lesser EMI, additional loan amount, and above all lower overall cost of the loan.
Some of the benefits of a personal loan refinancing are described as under:
Lower interest rates
When you refinance your existing personal loan with a new personal loan with a lower interest rate, you can save a lot of money. Because a lower interest rate means borrowers need to pay the less money in the form of EMI, which ultimately reduces the cost of the loan.
Because of a tight monthly budget, you may struggle to repay the loan. In such situations, transferring existing loan to a new personal loan with a lower interest rate or extended repayment tenure can offer a big relief as you don’t have to pay a big amount in the form of EMI.
A personal loan refinance provides borrowers with the option of the additional loan amount. If you need extra money, you can get a top-up loan while refinancing your existing loan, rather than applying for a new loan to meet your requirements, if any.
Better customer relation services
If your existing lender is not proving satisfactory customer services, you can refinance a personal loan from a lender that offers better customer care services. Now lenders are offering better customer services through various touchpoints like apps and websites, telephone and even doorstep services.
Points to consider before applying for a personal loan refinancing
Well, personal loan refinancing has a host of benefits, but borrowers need to consider a few points before refinancing their loan. Here are some of the important points borrowers need to consider:
Review your credit rate & history
Don’t immediately refinance your loan; decide if it is worth doing. Go through your credit score to ensure if you can get a new personal loan for a lower interest rate than the current rate. If your credit score is good or has improved since you got an existing loan, then you can negotiate the interest rate for the new personal loan. But if the credit score is low or has gone down, then you are likely to get the new loan with a marginally lower interest rate than the existing rate which will not make much difference to the overall cost of the loan and monthly instalment. Sometimes, the cost of the refinancing may be higher than benefits from refinancing.
Compare Annual Percentage Rate (APR)
The interest rate doesn’t reveal the overall cost of a personal refinancing; it is just the beginning. Processing charges and type of interest rate should also be considered along with the rate percentage so that you can figure out the overall cost of the loan throughout the tenure.
The APR (Annual Percentage Rate) presents a better picture of what your loan costs. However, keep in mind that other charges for things like late payments, prepayment or foreclosure, and cheque bounce usually aren’t included in the APR. If you think that you can prepay your loan ahead of the agreed tenure, consider looking for a loan with no or lower prepayment charges.
You can use a personal loan calculator, like ICICI personal loan EMI calculator, to estimate and compare benefits. A personal loan calculator is a very useful and easy-to-use tool to find out the monthly instalments and overall cost, and benefits from loan refinancing.
After you compare two personal loans, you should talk to your current lender at least once. You should request the bank to reduce the interest rates or extend the loan tenure for your loan. Most banks agree to offer better a deal to their borrowers to retain customers.
However, if your current lender refuses to offer more favourable terms, then apply with a new lender for refinancing your current loan at lower interest rate.
Inspect balance transfer documents carefully
Go through the loan transfer documents before you proceed with refinancing. These documents may contain some important information regarding balance transfer. Fine prints may contain some miscellaneous charges and important terms and condition about balance transfer. Talk to the lender if you are not clear about something.
Top lenders offering personal loan refinancing facility
|Lender||Interest rate (per annum)||Benefits|
|ICICI Bank||From 11.29%||Completely digital processCollateral free debtTop-up loan facilityExtended loan tenure|
|HDFC Bank||From 11.39%||Competitive interest ratesTop-up loan facilityEasy refinancing processNominal processing fee|
|Kotak Mahindra Bank||Attractive interest rateSpeedy process and simple documentationFlexible repayment option|
|IndusInd Bank||Average 15%||Hassle-free refinancing processAffordable interest ratesTop-up loan facilityLonger tenure|
ICICI Bank offers one of the best deals in the market. ICICI Bank personal loan interest rate is one of the lowest in the market. The bank uses modern technology to process loan refinancing in a matter of minutes or hours. You can check the ICICI Bank personal loan status after you apply for refinancing. Borrowers can use ICICI personal loan EMI calculator to find out the benefits.
So don’t get stuck with unfavorable personal loans with higher interest rates that lead to mental stress. With the infusion of technology in the financial industry, rates and terms keep changing over a certain period of time.