How to Transfer Your Personal Loan to Another Bank
You could save money or access more funds if you refinance your personal loan.
If you have a personal loan, you may be wondering if you should transfer it to another bank. There may be several reasons for refinancing your current personal loan, including saving on interest payments. The good news is that switching loans is easy, but there are a number of things you have to keep in mind.
Compare personal loans you can switch to
Can I transfer my personal loan to another bank?
Yes, you can transfer your personal loan to another bank. This is called refinancing and it involves taking out another loan to pay off your current one. Refinancing can have several advantages. It can help you save money if you switch to a lower interest loan. You may also stand to get a loan with better features or a higher loan amount. But there may be a downside. Some personal loans come with penalties if you exit the loan early – which you will have to do to refinance. You should take into account all these additional costs and see whether you stand to gain if you refinance.
Why do people refinance their personal loans?
There are several reasons people choose to refinance. These include:
- To consolidate debt. These loans are called debt consolidation loans. With these loans, you can pay off all your current debts by taking out a personal loan. You then pay off all those debts and close those credit accounts. You will be maintaining a single loan account, ideally with a lower interest rate. This can help you manage your repayments and potentially save on fees and interest.
- To save money. There's a chance there may be another loan on the market offering lower rates and fees. By refinancing to a lower cost loan, you get to save money and lower your monthly repayments.
- Access more funds. If you need more funds after taking out a personal loan, you could refinance. You could apply for a higher amount and pay off your existing loan with the funds. However, some lenders may allow you to increase your personal loan amount. In that case, you should consider whether it's cheaper to stay on or switch loan providers.
- To get a longer term. You may find that you want a longer loan term to pay off your loan. In that case, you could switch to a personal loan with a longer loan term.
What should I consider when switching personal loans?
If you're switching loans or refinancing, there are a number of factors to consider. These include:
- Cost. There may be costs associated with closing your current credit account. There is also the cost of opening a new loan account with your lender. You need to ensure that your savings are more than these costs. Switching loans may not work out for you if it ends up costing you more.
- Consolidation. Do you want to combine credit card debt, store debt and personal loan debt? Make sure your new lender will allow you to consolidate the different types of debt you have.
- Repayment history. Your repayments are listed on your credit file. Lenders may look at your repayment history to determine the kind of borrower you are. If you're already having trouble managing your current loan, a lender may not approve you for another.
- Long-term suitability. Find a loan that works with your long-term goals. Sometimes this may not be the cheapest option. But it may allow you other perks like flexible terms, fixed interest rates or free extra repayments.
- Like for like. If you're switching to a different product with the same lender, you may only be able to switch "like for like". This means switching, say, from one secured personal loan to another. While this may have its advantages, switching to another lender entirely may give you more choice and better rates.
- Eligibility. Your circumstances may have recently changed or are set to change in the near future. If so, you need to ensure you're eligible for the new loan you wish to apply for.
- Temporary deals. When switching loans, you may be tempted by temporary deals. Make sure you consider the cost of the loan after the promotional period has ended.
- Low or no cancellation fees. For ease of refinancing in the future, you may wish to look for loans with low or no cancellation fees or early repayment charges.
What costs should I watch for?
The main costs you may encounter are fees from your old provider and fees from your new provider.
Your current lender may charge:
- Early repayment fees. You must completely pay off a loan before you can switch to another provider. This is often done with funds from the new loan. Paying the total balance may incur early repayment fees. These fees are usually a percentage of the total amount. Not all loans have these fees. They are more common with fixed rate rather than variable rate loans.
- Administration fees. There may be an administration fee for adjusting or switching your personal loan. This is usually a flat fee of around $10 to $30.
- Break, cancellation or exit fees. Some loans may come with exit fees if you pay off your loan early. This may be a flat fee you have to pay when you close the loan account.
Your new provider may charge you for:
- Establishment fees. Some lenders charge establishment fees when you open a credit account with them. This is standard and is part of the cost of taking out a new loan.
- Administration cost. Your new provider may liaise with your old one on your behalf. It may charge administration fees for this.
- Account management or service fees. Some loans come with monthly or annual account management fees. This fee is standard.
How can I compare personal loans?
By comparing loans, you can find the right product that best fits your needs and budget. Here's what you need to look out for when comparing:
- What does the loan cost? Comparing interest rates is important, but you should also consider fees and the comparison rate. A loan could have low interest but high fees. This will increase the cost of your loan and may offset any gains you make with low interest. Check the comparison rate, which includes interest and fees. This will give you an idea of how much the loan actually costs.
- How much can I borrow? You may have multiple debts you need to pay off, or wish for a higher borrowing amount. Each lender will have maximum and minimum lending amounts. Does the lender offer the amount you want?
- What's the loan term? The loan term is how long you have to repay the loan. Loan terms will affect your repayments. Shorter terms will mean higher monthly repayments in the short run. With a long term, you'll have smaller monthly repayments but the loan could cost you more on the whole. This is because you'll be paying interest for the entire time, the cost of which can add up. Look for a loan that can give you the terms you want.
- Am I eligible? Do you meet the lender's minimum requirements to qualify for the loan? This can include income requirements and your credit score. Your application could be rejected if you don't.
- What's the repayment schedule and is it flexible? Can the repayment schedule be tailored to suit your cash flow? Can you make free additional repayments to pay off the loan early, or will you face a penalty?
- How does it compare to my current loan? Once you've compared loans based on the criteria above, you need to compare it to your current loan. How does your current loan stack up? What will it cost you to switch loans and will the new loan still be cheaper after you switch?
What should I avoid with personal loans?
- A more expensive or inflexible loan. If you're refinancing, you need to make sure you're getting what you need. If the new loan works out to be more expensive, it may be better to stick to your current provider. Likewise, if you want flexibility and the loan doesn't provide it, you should reconsider.
- Multiple applications. Every loan application shows up on your credit report. Several applications within a short period can have a negative impact on your credit score, making it harder for you to get a loan in the future. Select a single loan that you're eligible for and that suits your needs, and apply with that lender.
- Long-term repercussions and legal issues. Once you sign a loan agreement, you are bound to its conditions. You will have to pay the loan and all the fees. Keep in mind that for unsecured loans, the lender can initiate legal proceedings against you if you don't repay the loan. It can also report the debt to a credit reporting body like Equifax and use the services of a debt collector. For secured loans, your asset could be repossessed if you default.
How can I switch personal loans?
🔎 Compare loans. Before you decide to switch, you need to compare loans and lenders. This can help you find a loan that works best for you, in terms of cost, flexibility and features. By comparing, you can also work out where your current loan stands. Don't forget to compare interest rates, fees and eligibility criteria. You can use the comparison table on this page.
🖨️ Apply for the new loan. Organise and prepare the required documentation. This will make the application process easier. Most lenders have applications online.
🔐 Close your old loan account. Once you've been approved for the loan, you can work towards repaying your previous loan. Your new lender may be able to facilitate this. Once the loan has been paid off, you need to ensure your old account has been closed.
✅ Repay your new loan. You've switched to a new and better loan. You can now focus on making your repayments.
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