Can I Transfer My Personal Loan to Another Bank for Better Terms?

3 min read | Updated on December 01, 2025, 17:03 IST

You took a personal loan a year ago at 15% interest. Now you see advertisements for personal loans at 11%. You want a loan at that rate of interest (ROI). To avail that, you wonder if you can apply for a new loan at a lower percentage and close the existing one with a higher ROI?

Wait, there is a better way out. You can simply transfer your personal loan to another lender, like a bank or a Non-Banking Financial Corporation (NBFC). This loan transfer process is called a balance transfer. As it literally translates, the balance amount of your loan principal gets transferred to a new bank.

Let's understand the nuances of balance transfer.

What is a personal loan balance transfer?

In a balance transfer, the new lender pays off your existing loan and you start fresh with them under new terms. Your old loan closes and you now owe money to the new lender.

The reasons for balance transfer are usually a lower interest rate, longer tenure or both.

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Why would you transfer your loan?

Lower interest rates

If interest rates have dropped or your credit score has improved after you have taken the loan, you might qualify for better rates elsewhere.

Better customer service

Sometimes people switch simply because they are unhappy with their current lender's service.

Additional funds

Many lenders offer a top-up loan along with the balance transfer. This gives you extra money at relatively lower rates.

How much can you actually save?

Let's look at real numbers to understand the benefit. Suppose you have an ongoing loan with ₹5 lakh outstanding, 3 years remaining at 16% interest. Your current EMI is approximately ₹17,600 and you will pay about ₹1.34 lakhs in interest over the remaining period.

Now, you transfer this to a new bank at 12% interest for the same tenure of 3 years. Your new EMI becomes approximately ₹16,600 (₹1,000 less per month) and total interest drops to about ₹98,000.

Total savings - ₹36,000 over 3 years, plus ₹1,000 less monthly burden.

However, subtract the balance transfer charges (typically 1% to 3% of the outstanding amount, so ₹5,000 to ₹15,000 on ₹5 lakhs) and your net savings are still around ₹21,000 to ₹31,000.

That's substantial money.

What are the costs involved?

It’s important to understand the cost involved in the balance transfer process. These costs are,

Processing fee - The new bank charges 1% to 3% of the loan amount being transferred. There are times when processing fees are waived by lenders, you can think of transferring during that time.
Foreclosure charges with old lender - Your existing bank might charge 2% to 5% for closing the loan early (though RBI rules from January 2026 will eliminate this for floating rate loans).
Documentation charges - Usually ₹500 to ₹2,000 for paperwork and verification.

And don’t forget 18% on all the above-mentioned charges.

Subtract all these costs from the total interest difference. You will get to know your net savings in the balance transfer process.

The eligibility criteria

Not everyone qualifies for a balance transfer. New lenders will check your,

Credit score

You will need 750+ for the best rates. Below 700, you might not get approved or offered rates much better than your current one.

Repayment history

At least 12 months of timely payments on your existing loan. Any recent defaults make approval difficult

Income stability

Your income should comfortably support the EMI. Job changes or gaps in employment can be problematic.

Existing relationship

If you have a salary account or other products with the new bank, approval becomes easier.

How to transfer the loan

To transfer a loan, contact your new lender and they will guide you through the entire process. Generally, you need to submit know your customer (KYC) documents like identity proof and address proof, income proof, existing loan documents and a schedule.

Common mistakes to avoid

Transferring too frequently

The transfer costs in frequent transfers add up and the hassle isn't worth marginal savings.

Ignoring the tenure

Getting a lower EMI by opting for a longer tenure might mean paying more total interest. Always calculate the total cost and not just the monthly payments.

Not reading loan documents carefully

Check for hidden charges, prepayment penalties on the new loan, processing missed EMI penalties, etc

Timing matters

Transferring when you have already paid most interest (loans are front-loaded with interest) won't save you much.

Alternative - negotiate with your existing bank

Before going through the transfer process, try negotiating with your current bank. Many banks, especially if you are a good customer, will reduce your interest rate to retain you. This saves you all the transfer costs and paperwork.

Balance transfers work best for floating-rate loans with 2+ years remaining. Always calculate net savings after deducting all transfer costs. Your improved credit score since taking the original loan strengthens your case. Some banks offer balance transfer schemes during festive seasons with lower fees. Don't rush, shop around and negotiate Read the new loan agreement carefully before signing

About Author

Pradnya Surana

Sub-Editor

is an engineering and management graduate with 12 years of experience in India’s leading banks. With a natural flair for writing and a passion for all things finance, she reinvented herself as a financial writer. Her work reflects her ability to view the industry from both sides of the table, the financial service provider and the consumer. Experience in fast paced consumer facing roles adds depth, clarity and relevance to her writing.