When Should you Go for a Balance Transfer?


15 Jan 2020 | 5 min read

India is home to the largest millennial population around the world which we call the youth, which constitutes the largest student lobby and the maximum number of people as a working population. According to a recent survey, the Indian credit market has seen significant growth in terms of borrowers through personal loans and credit cards. A study suggests that the credit card balances and the number of accounts have increased by 40% to the tune of ₹ 10,900 Cr at the end of Q3 2019-20. The growth in the number of newer accounts has been recorded at a whopping 134% as the customer's demands have continued to accelerate. 

As the numbers keep increasing, and the tendency to cover routine expenses through the means of credit cards and personal loans requires considerable knowledge in order to keep your financial health intact and free from the debt trap. In order to do so, a Balance transfer is a feature that might help the borrowers to keep the costs of borrowing as low as possible.

Balance Transfer is a very lucrative facility by which one can transfer their existing loan balance to another lender at a lower cost. Initially, this facility was only available for credit card balances, however, now it can be done for personal loans as well as home loans

If in case you are wondering when is the time to avail a balance transfer, ask yourself a few simple questions as described below:

Change in your spending habits –

Most of us accumulate unwanted debt by the way we spend. A credit card is a tool that makes the process of buying the things you need or desire relatively easier and you only pay when you have the money. In case, as a result of your spending habits in the past, you have accumulated debt which is extracting most part of your income, you need to change your spending habits else you end up in a series of balance transfers which serves no purpose.

However, currently, there is no limit on availing a number of balance transfers on your account, but the balance transfer cycle might increase the overall interest burden after a certain time.

Ability to pay off debt early –

A balance transfer is considered to be an easy solution for those who are not confident about paying off their existing debt within the interest-free period as provided by the credit card company. If a person does not pay the minimum balance due at the end of each billing cycle, they are liable to pay back the minimum balance with accrued interest which is a high price to pay. 

However, one must avoid paying off balances after the stipulated time of a yearly cycle as the balance amount which is paid after the end of the initial interest-free period might show adverse observations on your credit report.

Lower interest -

Lenders usually charge interest rates applicable on loans from time to time. If a new lender is offering you lower interest rates than your current lender, you can transfer your loan from the existing lender to the new lender. However, make sure prepayment penalty charged by the

Looking forward to a Loan –

The balance transfer feature might help you prepare for a loan as well as pay your credit card dues. In technical terms, the process of availing of a loan and bringing all your debts under one umbrella is known as debt consolidation. If a borrower is under a burden of multiple credit card debts and is not able to pay back due to heavy interest burden, availing a loan with a balance transfer facility with a lower rate of interest might provide some relief temporarily. 

Balance transfers are easy to avail these days but are not instantaneous. It depends on various factors ranging from the type of issuer, the credit history of the applicant, and a number of other factors, depending on these balance transfer could take as little as three days from a prompt lender or as long as six weeks to come into effect completely. And while your credit card issuer should be able to give you a sense of how long it will take, there’s no way to know in advance exactly how long you’ll have to wait.

In the meantime, instead of sitting with your hand-on-hand kindly be sure to pay at least the minimum due to your existing creditors. Failing to do so could lead to late fees and damaged credit and could even disrupt the balance transfer in progress.

Most of the banks also allow a top-up facility once you avail of the balance transfer facility, which is particular to personal loans. However, the primary role of a balance transfer is to reduce the existing debt burden and avail a lower rate of interest, in the case of a top-up loan the applicant might end up attracting more burden. One must keep the option to withdraw funds open if in case a sudden need arises.

When the outstanding loan amount is bigger and you can receive a better offer from another lender, a balance transfer of a loan or credit card is recommended. The better bargain may include a lower interest rate, lower processing fees, a longer repayment period, or certain features that are advantageous to you. 

When should you go for a personal loan balance transfer?  

You can check the reasons for personal loan balance transfer listed below: 

  • When you receive an offer from another lender with a lower interest rate. 
  • When another lender offers a balance transfer option and offers you better terms. 
  • When you have more money to save (doing the calculation is a must before you come to this conclusion.) 

When should you go for a credit card balance transfer?  

Listed below are help you to understand the simple ways for credit card balance transfer:  

  • When you learn you're paying a higher interest rate on your credit card. 
  • When your credit card has a large balance due. 
  • When you obtain a balance transfer card with features that meet your needs. 
  • Apply for a card that offers a 0% APR on balance transfers for a limited time. 

Steps to apply for a balance transfer  

Given below are the steps to apply for balance transfer for both personal loan and credit card users: 

  • Examine your outstanding balance as well as your interest rate. 
  • Look for better prices on the same item. 
  • Check with the new lender about a balance transfer option. 
  • Make accurate calculations and analyses. 
  • Pre-closure fees and new processing fees should not be overlooked. 
  • Read and understand the terms and conditions before applying for the loan. 
  • Only go for it if it meets your needs and saves you some money. 

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