Car acquisition is mostly by borrowing money in car loans on behalf of masses. Although finance facility has the advantage of owning a vehicle once, otherwise it has whopping rates of interest as well as repulsive repeat EMIs (Equated Monthly Instalments). If you have yourself stuck in the middle of an expensive car loan, a balance transfer car loan can become an effective option to save your outgo and lower your monthly EMIs. Here, in this article, we will discuss some advantages of a balance transfer car loan and discuss some useful steps to reduce your EMIs.
What is a Balance Transfer Car Loan?
A balance transfer car loan is basically when you roll over your unpaid balance of your initial car loan to a different lender with better terms, i.e., better interest rates. Your new lender settles your original loan, and you pay off the new loan in better terms. A balance transfer lowers your EMIs, lowers your interest rates, or assists you in altering the loan tenure so it becomes more suitable.
This is particularly helpful if you’ve already been making payments on your car loan for a while and found that your rate of interest is greater than prevailing market rates or your circumstances changed in order to qualify for improved terms. Borrowing against your car loan balance transfer will save you more money in the long run and lowers your monthly payment burden.
Benefits of a Balance Transfer Car Loan
- Reduced Interest Rates
Another good thing with a balance transfer car loan is that you have the possibility to get approval of a reduced rate of interest. If you took your automobile loan at a high rate first off, then you proceed to refinance it in another establishment where you receive a lower rate, then you gain by saving significantly. A reduced rate of interest implies that you will be paying less interest charges throughout the loan period, reducing the price of the vehicle.
For instance, when your current car loan has a 15% interest rate and you roll over the amount to another lender who charges a 10% interest, you will be paying unnecessary interest. This can save money for some other expense or investment.
- Reduced Monthly EMIs
A car loan balance transfer not only lowers the rate of interest but can also lead to significantly lower EMIs. Lower EMIs imply that you are able to repay your monthly instalment in a much improved fashion without having to tighten your belt. It is particularly handy for those who are struggling to pay their existing car loan.
In some cases, lenders may also offer the option to extend the loan tenure while reducing your EMIs. While this may increase the overall interest paid, it can provide immediate relief by spreading out your payments over a longer period, making your monthly payments more affordable.
- Flexibility in Loan Tenure
The second major benefit of a car loan transfer is that you can alter your loan tenure. You can have to shorten your loan tenure to repay your loan earlier or lengthen it in an attempt to lower your EMIs. A balance transfer offers the flexibility to select the tenure of the loan that best serves your purpose.
If you opt for shorter tenure on your loan, you’ll pay off the loan within a shorter timeframe and save charges on interest. Otherwise, lengthening the tenure will cost more interest charges but is helpful when you wish to lower your EMI in the event that your present financial conditions are not such that you would be able to pay more instalments.
- Easy Loan Management
If you have a number of loans, like personal loans or credit cards, you can consolidate your car loan into one balance transfer, it simplifies your money. Keeping all your debt in one place, you have to make just one payment every month. It keeps you together and doesn’t let you forget a payment, which costs you fees and a credit hit.
Also, there are lenders that will provide you with more convenient payment terms, like flexibility in changing the dates of payment, so it is simpler to manage your payday timing.
- No Prepayment Penalties
Most lenders will permit you to roll over the balance of your car loan without paying a prepayment penalty. This is beneficial if you plan to pay off your car loan sooner than you need to when you roll over the balance. This way, you will be paying fewer interest rates and settling the loan sooner. Again, make sure that you read through the lender’s terms and conditions prior to asking them to accept the balance transfer so that you do not end up with any unexpected charges.
- Improved Loan Terms and Service
A balance transfer car loan at times provides better service or better terms of the loan than your current lender. Some lenders provide value addition such as lower processing fees, improved customer service, or other benefits for transferring your loan to them. This value addition simplifies the loan process and makes it more beneficial for the borrower.
How to Lower Your EMIs with a Balance Transfer Car Loan
While reducing your car loan balance to some other lender reduces your interest rates and EMIs for you by default, there are a few more things which you can do to reduce your EMIs further.
- Check Your Credit Score
It is a must to check your credit score prior to taking advantage of a balance transfer car loan. The lenders will automatically give you less interest charges for those people who have a higher credit rating, or in other words, when your credit rating is better than when you took the money the first time, you will be eligible to get less interest charges. If you’re a person with a poor credit rating below what it should be, then what you can do is boost the credit score before conducting a balance transfer. This is achieved by paying off loans and clearing credit card balances.
- Compare Multiple Lenders
Not all lenders offer the same rate of interest, tenure of the loan, or processing fees. Therefore, compare and shop around a few lenders prior to doing a balance transfer. For this, compare the terms of several banks, finance companies, or on-line lenders using on-line comparison tools within minutes.
When comparing, make sure to compare the total cost of the loan, not just the interest rate, but also the processing fee and other balance transfer fees.
- Negotiate with Your Lender
If you have been a long-time customer of your existing lender and pay your payments in a timely manner, speak to your lender to negotiate a better deal on your balance transfer. You ought to be in a position to negotiate with your lender to lower the interest rate or exempt part of the fees because they do not want to lose you. The smallest cut of the interest rate can be all to you if they cut it by a fraction.
- Extend Your Loan Term (If Possible)
If your goal is to lower your EMIs, one option is to extend the tenure of your loan. While this may result in paying more interest over the life of the loan, it can significantly reduce your monthly payments, making them more manageable. Just be aware that extending the loan tenure increases the total interest cost, so it’s essential to strike a balance between lower EMIs and the total amount paid.
- Partial Prepay
Prepay a part of your current car loan if you are fortunate enough to have some excess money in your hand. In case you prepay in advance a part of the money prior to the amount outstanding being passed on, it will lower the principal, and hence your EMIs because the total interest on the outstanding will now be less. This is a good strategy if you get some money, e.g., tax refund or bonus, and you want to pay back some amount of the loan so that the loan burden is reduced.
- Select Fixed Interest Rates
When you transfer your car loan balance, you may be offered the option of floating or fixed interest rates. A fixed rate locks the interest rate throughout the life of the loan on car, providing you with stability and certainty in your EMIs. A floating rate may increase over a period based on the market. Floating rates may be low at the beginning but may increase in magnitude, so your EMIs.
If you like predictability and dislike the volatility of increasing rates, a fixed rate interest may be the more suitable option.
Final Thoughts
A balance transfer car loan may be just what you need if you’re saddled with high interest payments or huge monthly instalments. By refinancing your automobile loan to a new lender who has superior terms, you can lower your interest rate, lower your EMIs, and lower your burden of loan. Apart from this, by acting ahead of time like improving your credit score, comparing lenders, and negotiating superior terms, your month-to-month instalment burdens can be further lowered.
Remember that though a balance transfer car loan offers short-term relief, you should make sure you account for the overall cost of it, including processing charges, so that you can take an informed decision. With planning, you can reduce your EMIs and gain greater financial comfort when paying back your car loan.
