Credit card balance transfers to personal loans are easy today

Lower interest rates, longer repayment tenure are advantages, provided you service the EMI regularly

Online lending platform, Loantap.in, which provides retail loans for salaried customers used to receive about one or two enquiries for personal loans in three to four months. Over the last one to two years, the number of enquiries for personal loans has increased to about 15 in three to four months. And about 30 per cent of the personal loans availed are for paying off credit card outstanding dues, says Satyam Kumar, co-founder, Loantap.

“Usually, personal loans for direct consumption are taken for large ticket items like wedding, etc. But in most cases we see that personal loans are taken for clearing credit dues. Consolidating credit debt into a personal loan offers lower interest rates, longer tenure to repay and there is lesser pressure on monthly repayments.,’’ says Kumar.

For someone who is unable to afford even the minimum payment due on the credit card, transferring the balance to a personal loan is a good option. But it requires discipline, says Ranjit Punja, CEO and founder, Credit Mantri, an online credit management services company.

“Most people look for a solution only when the outstanding amount has run up quite a bit. This (transferring to a personal loan) is a trade-off between paying off the debt and the flexibility to use the card. You could continue paying the minimum balance and keep using the credit card. But once you take a personal loan, you have to service the Equated Monthly Instalment regularly. But you will get interest rate advantage as the rate on personal loan is much lower than that on credit cards,’’ says Punja.

For instance, you could have run up an outstanding of Rs 1 lakh and are paying Rs 5,000 every month. But due to the high interest rates, the money goes towards paying interest only and the principal outstanding remains the same. It is when faced with such situations, that cardholders decide to opt for transferring the balance to a personal loan.

The interest rate on credit cards are usually 24, 36 or 48 per cent annually, with lower interest rates being offered to premium customers who have high credit card limits. But it is usually those with lower limits, up to Rs 1 lakh, who tend to run up high outstanding. And they have to bear a high interest cost too.  

Typically, savings in terms of interest rate can be 17-18 per cent annually or even as high as 24-25 per cent annually. A personal loan could be available at around 18-24 per cent plus, depending on your credit worthiness. So, against a 48 per cent credit card loan, a personal loan at 24 per cent can give you a 24 per cent saving.

“A saving of even 100 basis points is advantageous. If it means you can be debt free in 12-18 months down the line, even if you may have to tighten your belt now, it is a good option,’’ says Punja.

Transferring the credit card balance to a personal loan will improve your credit score, because you are shifting from an expensive loan to a cheaper one. For the same reason, getting a personal from the same bank which has provided you a credit card may be difficult because the lender may not want to shift from a higher yielding credit to a lower yielding credit, unless they see you as risky customer. So you could try for a loan from another bank. You could also use the option to convert the spend into an EMI at the time of the transaction itself, but that will limit your credit card limit till it is paid off in full. This too will not affect your credit score negatively.

With several online loan aggregators getting a personal loan may not be very difficult. But remember that every enquiry and application you make could impact your credit score negatively, warns Kumar.