If you have an ongoing home loan or personal loan and receive a lower interest rate offer from another bank, transferring the loan is a smart move! Many people think it’s a huge hassle, but it’s really not that difficult.
I’ve transferred my home loan once myself, so I’m explaining the entire process to you in simple language step by step, perfect for beginners.
What Is a Loan Transfer?
It’s simple you close your old loan and take a loan of the same amount from a new bank but at a lower interest rate. The new bank repays the entire amount to the old bank in one go, and you now pay EMIs to the new bank. The benefit? The EMI reduces every month or the tenure shortens.
Step 1: Check the New Bank’s Offer
- First, check the home/personal loan interest rates from other banks.
- These days, they’re offering 8.25%-8.75% (until December 2025).
- Ask for a balance transfer offer from the bank they’ll tell you how much the EMI will be.
- Also ask for a processing fee (usually 0.5% to 1%).
Step 2: Prepare the Documents
The new bank will require the following:
- Loan statement from the old bank (last 12 months)
- Loan account number
- Property papers (if it’s a home loan)
- KYC (Aadhaar, PAN, salary slip or ITR)
You will need to request a foreclosure letter from the old bank.
Step 3: Apply to the New Bank
- Apply for a balance transfer online or in a branch.
- The new bank will check your CIBIL (must be 750+, otherwise there may be problems).
- As soon as you receive approval, they will issue a check/DD in the name of the old bank.
Step 4: Get a Foreclosure Letter from Your Old Bank
- Go to your old bank or submit an online request stating, “I want to close my loan.”
- You will receive a “Foreclosure Letter” within 3-7 days, stating the exact amount you owe (principal + foreclosure charges).
- Foreclosure charges: A maximum of 2-3% for a home loan, and up to 4-5% for a personal loan.
Step 5: Final Settlement
- The new bank will give the check to your old bank.
- Your old loan account will become zero.
- Your new bank will start EMIs now at a lower interest rate.
How Much Will You Save? An Example
Let’s say you have a home loan of ₹30 lakh at 9.5%, with 15 years left:
Now EMI: ₹31,400
Transferred from a new bank at 8.4%, EMI: ₹28,200
₹3,200 saved every month → ₹5.7 lakh saved in 15 years.
Important Points to Remember
- Processing fee + foreclosure charges can cost up to ₹30-50,000 but is recovered in 2-3 years.
- There may be a slight impact on CIBIL (10-20 points), but it returns to normal in 2-3 months.
- If the tenure remaining is very short (3-4 years), then there is no benefit in transferring.
- Personal loan transfer is a little difficult, home loan is the easiest.
Pros and Cons
Pros
- Reduced monthly EMI
- Saving lakhs in total interest
- New bank may offer better service
- Can reduce tenure if desired
Cons
- Requires some paperwork and time
- Initial expenses of 30-50,000
- Little impact on CIBIL
- Personal loan transfer is difficult
Conclusion
If your loan interest rate is more than 9% and you have 7-8 years or more left, transferring the loan is absolutely worth it! Once you work hard, you’ll save money every month.
Banks are offering very good offers right now, so check your loan statement, check the latest offer, and calculate your savings. Tell us in the comments what is your loan interest rate and do you plan to transfer it?
