Availing an education loan is one of the most popular ways to fulfill one's educational aspirations. Since repayment of education loan can involve a fairly long tenure, and usually begins with one's professional life, transferring it to another lender with better interest rates or terms, can save one a significant amount of money. But before taking the decision, consider the following:
Compare interest rates
Interest rate for education loans generally range from 8.5% to 15.3%. If you want to switch your lender, make sure you compare all the available options available in the market and choose a lender that offers the lowest interest rate. Also, check if the lender offers additional benefits; as most lenders offer female borrowers additional concession up to 0.50% on interest rates. However, keep in mind that balance transfer does not come with EMI holiday or moratorium period, which means you would have to start paying right after the balance loan amount gets transferred to another lender.
Calculate cost of transfer
Balance transfer can incur certain charges, like such as processing fee for balance transfer could be as high as 2% of the balance loan amount. Other charges could include administration fee, stamp duty charges, credit report fees etc. Consider all this and calculate whether you are saving a significant amount of money in the long run by choosing the transfer option. Basically, the money you save in the long run by transferring to a lender with a lower rate of interest should be considerably higher than the charges you will incur to make the transfer.
Ask for step-up repayment plan
Even when you opt for balance transfer, it is not necessary that you have to pay higher EMIs in the initial phase of the loan. You may ask the lender to allow step-up repayment, where you pay lower EMIs in the initial phase that gradually increase over the tenure. Hence, it is important that you check with the lenders, if they offer any such facility over balance transfer. You should opt for step-up repayment plan, especially if you are running on a tight budget.
Maintain clear credit/repayment record
Make sure not to delay or miss any EMI, as most of the lenders take repayment history of upto 12 months into consideration, while evaluating your loan application. Default or delay in loan EMIs would not just hinder your eligibility to avail balance transfer, but also hurt your credit score and your chances to avail future loans that you may need. It is always recommended to pay your EMIs on time and maintain a clear credit record.
Talk to your existing lender
Before you opt for balance transfer, make sure to get in touch with your existing lender and ask for a better rate of interest. In order to retain you as a customer, your lender may offer you a better deal on your existing education loan. If that happens you not only save money, but also do it without making the efforts that a transfer would need.
So, while an education loan balance transfer can be a beneficial opportunity, make sure that you do a thorough cost benefit analysis. As the benefit availed by it does not solely depend on the difference between the interest rates offered by the two lenders. It is also influenced by other factors, such as the remaining tenure and the amount left to be paid. For instance, if your outstanding balance amount is low, balance transfer may not be prudent.
—by Gaurav Aggarwal – Associate Director & Head of Unsecured Loans, Paisabazaar.com.
