Five things you must know while transferring a car loan to another lender3 min read . Updated: 16 Jan 2021, 08:10 PM IST
- The eligibility criteria for a car loan balance transfer vary from lender to lender
- To get your car loan transferred smoothly, you need to submit a loan statement from your current lender with details about the outstanding principal and interest amount, tenure etc
With banks offering attractively priced car loans, owning a car is affordable and convenient. But what if after taking a car loan, you realise there are better loan options? You have the option of transferring your loan to a new lender of your choice.
“This process of transferring your existing loan to another lender is called a car loan balance transfer. Each lender has different terms and conditions for such transfers. It is a simple process wherein after you have applied for a loan transfer, the new lender will clear your existing loan with your previous one and the EMI payment process begins with the fresh lender. Here are five things to keep in mind before a balance transfer," said Adhil Shetty, CEO, BankBazaar.com.
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Check if you are eligible
The eligibility criteria for a car loan balance transfer vary from lender to lender. Check with both your previous and future lender if you qualify for the same. For instance, one private lender says you can’t foreclose the loan in the first six months. Another private lender says you must have paid at least 11 EMIs on the old loan before transferring the loan to it. You must also meet the new lender’s age, income and credit score eligibility.
Sujay Das, Chief Risk Officer, MoneyTap - Bengaluru based Fintech firm, said, "Firstly, the new lender will check a few points. To begin with, they will verify the car’s condition and the person’s risk profile. They will check if the borrower is eligible for a loan and will look into details like accident history, make, and model of the car."
“Besides, they will evaluate the insured declared value (IDV) of the car and how much the new lender will finance, followed by other factors such as the previous insurance taken on the car and whether instalments are being paid consistently. Once the approval by the new lender is complete, the old lender will give a foreclosure letter to state that the loan is closed with them," Das said.
Assess the costs
Lower costs of borrowing are the prime reason most people transfer loans. Therefore, calculate what you stand to gain from the transfer. "Take your Equated Monthly Income (EMI) and multiply with it the number of months left in your loan tenure. For example, you have 48 months left with each EMI worth ₹5000, therefore you need to pay ₹2.4 lakh. Next, calculate what you will pay the new lender – sum total of EMIs on the new loan, processing fees, pre-closure fees on old loan, and any applicable fees and taxes. If you make significant savings over ₹2.4 lakh, you should consider the transfer," Shetty explained.
Assess quality of service
Beyond the costs of lending, also assess the quality of service your new lender will provide. This is also a significant reason for loan transfers. Car loans are a long-term commitment, and therefore you should go to a lender whose services you’ll be satisfied with.
Know interest rates and eligibility
This continues from the points about costs of borrowing and your loan eligibility. Shetty said, “Normally, lenders have an interest rate range. The lowest rates are reserved for customers with good income profile and healthy credit score, while the others may have to pay a higher interest rate. Before you apply for any loan, know your credit score. If it’s weak – let’s say, under 700 – work towards improving it so that it’s above 750 and you can avail the best loan offers."
Documents needed for a car loan transfer
To get your car loan transferred smoothly, you need to submit a loan statement from your current lender with details about the outstanding principal and interest amount, tenure etc. Besides, you will also have to provide all documents needed to apply for a fresh loan like an identity proof, address proof, salary slips, bank statement, PAN card etc. Once the transfer is complete, ensure you collect a no-dues letter from your first lender.
“You will need a No Objection Letter (NOC) from the previous bank. You will also need to check with the new lender if another additional NOC from RTO is also required and make sure that the hypothecation changes from the old lender to the new lender," said Das.