Deciding a suitable lender and a suitable loan type can be quite a task. Sometimes, the confusion persists even after having availed the loan. People may develop second thoughts on hearing of other banks offering loans at lower interest rates. But, is a low interest rate the only important factor while considering a loan transfer?

To answer this question, let us first look at what loan transfer really means.

WHAT IS LOAN TRANSFER

You may become dissatisfied with your bank's services or existing loan policies. You may feel like you're stuck till the loan is paid off.

But, you can approach another bank and apply for a loan equivalent to the outstanding principal of the loan taken from your original bank. For instance, if you have paid 40 % of the loan back to your original bank, but want to change the lender, you can ask another bank to issue a loan of the remaining 60 %. The new bank will repay the remaining amount to the old bank on your behalf and will issue a new loan (of the outstanding amount) to you. But, what are the criteria for deciding whether loan transfer is feasible?

WHAT TO CONSIDER

Total outflow

The most common attractions for transferring the loan from one bank to another is a lower interest rate or reduced EMI. But, be careful that a reduced EMI may mean a longer tenure, which would increase the total outflow from your end. You must calculate the total outflow of money in case of both banks - the existing one and the prospective one - and then decide the ideal lender.

Administrative charges

Calculate all additional costs like the processing fee, stamp duty, legal charges, valuation fee, technical charges and other administrative charges that are levied along with a loan application. Some banks charge a different processing fee for salaried applicants and a different fee for business-owners. Other banks have a fixed fee for all. You must take these costs into consideration while calculating your net profit and loss.

Collateral

Let us go back to the earlier example. You must have offered somecollateral to your original bank at the time of applying for the loan. Now, however, you have repaid 40 %, and want to apply (to the new bank) for the remaining 60 %. In this case, since the principal amount will have reduced, you do not need to offer the original collateral in entirety to the new bank. You must offer a smaller collateral. If, however, the bank demands the same amount of collateral, you must negotiate on the interest rate.

Related account requirements

Generally, banks require all applicants to open a savings account and pay the EMIs through that account. You must analyse carefully the benefits attached to the account as opposed to the related charges. Analyse the level of comfort you have with both banks and the kind of priority you enjoy. If you were a premium customer at the former bank, you would be offered better and quicker services there. While these may seem like minuscule details, they actually go a long way to give you an efficient banking experience.

Terms and conditions

While all banks follow some uniform policies, some of their policies may be exclusive and different. You must read and understand thoroughly all terms and conditions attached to the loan. It is possible that they may use different conditions or even just a different language. Don't leave scope for any confusion; use help, if required.

HOW TO APPLY FOR LOAN TRANSFER

Submit an application to your current lender/bank requesting for loan transfer to another bank. Depending on your request and financial history, the bank will issue a No-Objection Certificate and a statement which would mention the outstanding amount. Submit the certificate and the statement to the new bank to whom you want to transfer the loan. After examining and verifying the documents, the bank will approve the loan and will sanction an amount for the closure of the loan with the former bank. After the completion of all the formalities, the former lender will hand over all your documents to the new lender.

This will be a fresh loan with the new lender, and so you will have to follow all legal procedures, like verification, technical evaluation etc. again.