Loan Balance Transfers


Executive Summary

Balance Transfer of a loan is a facility that allows a borrower to transfer the outstanding principal balance of a loan from one lender to another. Almost every bank and NBFC provides this facility to their customers for almost all types of loans – personal, home, auto, education, etc.

Why Avail A Balance Transfer Of Your Loan?

  • Reduced Interest Rate : The new lender will generally offer you a reduced interest rate than the original lender, thus providing you with the option to reduce your EMI amount and overall interest liability.
  • Change Repayment Tenure : While making the switch to the new lender, you can renegotiate your tenure depending on your current financial circumstances. A longer tenure would mean lower EMIs but higher overall interest payout. A shorter tenure would mean higher EMIs but lower overall interest payout.
  • Top-Up : This gives you the flexibility to borrow more money. Many lenders are willing to offer a top-up at a relatively lower rate of interest if you agree to transfer the outstanding balance of your current loan.
  • Better Features and Services : Enables you to enjoy better features and services offered by a new lender when compared to your current lender.

Sample Calculation

HOME LOAN Principal (Rs.)

Interest Rate (%)

Tenure (years) EMI Total Interest Payable
Original 25,00,000 13.5 20 30,184 47,44,248
After BT 24,85,089 12 20 27,363 40,82,024






Taking the case above, where the person has opted for a balance transfer after 1 year, you would notice that the principal amount has not reduced to a large extent, which is primarily because Rs. 1,96,379 has gone towards payment of interest.

If you opt for  loan balance transfers now at this stage at 12% for Rs. 24,85,089 at say again for 20 years, you will see there is immediate reductions in the total interest you have to pay Rs. 40,82,024 resulting in a saving of over Rs. 4.65 lakh. This will also bring down the monthly EMIs to a more manageable Rs. 27,363.

(However, this calculation does not take into account pre-closure charges with the current lender (not applicable for home loans anymore), processing fees of the new lender, MODT (Memorandum of Deposit of Title Deed) charges of 0.2% to 0.5% on mortgage payable in some cities/states. These miscellaneous charges are to be taken into account while calculating the overall saving).

How To Avail A Balance Transfer?

  1. Apply for a NOC (No Objection Certificate) and foreclosure letter from your existing lender along with a loan statement that shows your EMI payment history (typically a minimum of 12 instalments required).
  2. Start the application process with the new lender by submitting all the required documents like proof of identity, proof of address, bank statement, etc. depending on your type of loan and type of employment.
  3. The new lender will verify all the documents and evaluate your balance transfer eligibility based on conditions that are internal to the lender.
  4. If your eligibility is determined and you are in agreement with the new loan terms, get the sanction letter and loan agreement from your new lender.
  5. At the time of disbursement, the new lender will hand over a cheque of the balance principal amount in favour of the old lender. 
  6. Once you have deposited the cheque with the old lender, they will then transfer all your loan papers to the new firm and cancel all post-dated cheques and ECS that lie with them.
  7. The transfer process is then complete.

About Akhil Talashi 

Akhil is an Associate Functional Consultant at Kuliza with a background in business development and solution selling in the digital space. He is currently working on a project that involves loan against property balance transfer.