Is It A Good Idea To Use A Personal Loan To Close Other Personal Loans?by Amrita Agarwal Digital Marketing Manager
YES! It is.
Personal loans are undoubtedly helpful during cash crunches but no one likes being under a loan for a long time. Once the purpose of the loan is over, the first thought of most of the borrowers is how to come out the debt burden faster. The same concern increases when there is more than one loan to be repaid.
Servicing two or more loans is a very common phenomenon in urban India. But it is true that repaying multiple loans at a time leave us worried financially and psychologically too. One of the most tried and trusted methods of making yourself free from this debt trap is taking another Personal Loan. To the surprise of many borrowers, a new personal loan can ease the burden of overwhelming multiple loans and simultaneously helps to save some money too.
How does it work?
Multiple personal loans or a costlier personal loan can be refinanced by a single and cheaper personal loan. A new personal loan amount will be used to consolidate the existing personal loans. Many a time it happens that one takes a loan in urgency and didn't get enough time to research on the lender. So he/she ends up in choosing a costlier loan. In such cases, one can go for a new personal loan to prepay the existing costlier personal loan. This will bring the interest rate down and he has to pay a lower EMI for the same loan amount.
The Available Options
There are mainly two options available to close a personal loan.
i) A home loan top-up- If a person is servicing a home loan then there is an option available for him called- Top-up loan. A top up loan is an overdraft facility on a home loan. The interest rate on a top-up loan is less than a personal loan. So, if the provision is available than one can take a top-up loan to close a personal loan.
ii) Secured Loans- Secured loans can be taken for any purpose against collateral. Secured loans are cheaper than unsecured personal loans as the risk factor at the lender's end is minimized. But the thing to consider is that- in the case of defaulting the loan, the lender will have the right to put your valuables to an auction to reimburse the lent amount.
Points To Ponder Before Taking One More Personal Loan
It is true that closing multiple personal loans with a singular personal loan brings us profit, but how much of profit can be earned depends on some factors. Here is the checklist which one must keep in mind to earn maximum profit.
The new loan will come with an origination fee.
If the loan is at a fixed interest rate then there will be foreclosure charges.
A good credit score is required to fulfill the eligibility criteria.
The profit will be remarkable if the new loan has been taken at the early period of the tenure.
The profit even depends on the remaining tenure.
The interest rate of the new lender must be lower than the existing lender.
One must calculate the total outgo of both the loans before taking a new loan. There is a simple formula which can be used to check whether on should go for taking another loan or not.
Let's take the processing fee of the new loan as 'a' and the pre-closure penalty of the existing loan as 'b'. Now we need to find out the difference in monthly EMI. The monthly EMI can be can be calculated by using an online EMI calculator. So this difference is taken as 'c'. So if c> (a+b) then one can take the deal and it will make you reap a profit.
In most of the scenarios, closing multiple personal loans with a new personal loan makes sense. Availing personal loans are no more tough and tedious. The provision of personal loan online has made the loan process much easier. One can apply for personal loan online with the help of internet and the website of the lender. One can easily apply for loan online which disburse much faster than conventional loans. But before going to close the existing loan, it is highly advised to talk to the lender and ask him to cut down the interest rate. If the lender is convinced to do so, it will save much time and effort of the borrower.
Created on Jan 10th 2018 00:40. Viewed 377 times.