My neighbour Bilal planned to transfer his car loan and turned up to me for advice. When he bought his car I asked him to research the car loan balance transfer facility which could be beneficial. Some of his friends advised him not to transfer the car loan because it might affect his credit score. I was working in a bank and he requested me to explain about the car loan balance transfer facility.
I explained to him that when an individual shifts an ongoing car loan from the existing lender to a new lender, that process is known as a car loan balance transfer. Individuals usually opt for it because the loan interest rate offered by the new lender is comparatively low from the existing lender. It is a long process and one should go for it after thorough calculation.
Getting a better rate of interest from another bank is not possible if you apply for a car loan balance transfer with a poor credit score. Factors like credit utilization, length of credit history, and repayment of EMI affect the credit score. Hence, it is necessary that you maintain a good credit score as it will help you in grabbing an amazing deal for a loan balance transfer.
Your existing credit score will not be affected when you transfer your loan. But, if you fail to repay the EMI it will adversely affect your credit score.
There are a fixed fee and other taxes associated with a loan balance transfer facility. People are usually unaware of it and think that it’s free. I recommend you to read the new loan agreement thoroughly or ask the bank executive for clarity on the cost of transferring the loan.
Frequently transferring loan from one lender to another will not help you in saving money. When you choose to transfer the loan for the first time, it is because you are offered better interest rates. When you transfer the loan more than once, your savings will not be sufficient because you will end up paying the transferring cost each time.
Transferring a loan does not mean that you have cleared the loan. It simply means that you have opted for better interest rates which will result in a lower EMI. When you transfer your loan it is still a liability to you until you repay the complete amount according to the loan agreement.
These are common myths about car loan balance transfer. Every lender has specific terms of repayment and you should understand them before deciding to transfer your loan. The new lender can demand an inspection of your car before the loan transfer. If the car servicing schedule is not followed, it will affect the performance and appearance of your car. Hence, you might miss an amazing offer if the lenders are not satisfied with the condition of the car.
Do not trust people’s words blindly. Visit your bank to clarify all the doubts on the procedure, interest rate, tenure of the loan, EMI amount, and cost of the transfer. Most of people are unaware of this facility or misunderstand the concept and therefore avoid it. A car loan balance transfer is a lucrative facility and significantly helps in saving money. If you have taken a car loan, you must consider transferring the car loan balance during the repayment tenure.