Availing a personal loan is not often the first choice of people when they have savings. But depleting savings that you have kept aside for future uncertainties or emergency situations, is not at all advisable. If you already have a pending debt at a higher interest rate, then taking another instant personal loan at a lower interest rate can be really helpful.
Another option that people readily seek in this situation is balance transfer. As the name indicates, it means transferring existing debt balance to a credit card that provides 0% promotional interest rate for a specified time period. Although balance transfer cards charge a transfer fee, despite that 0% interest rate certainly seems lucrative. In the case of personal loan, there’s no way that the interest rate would be zero, however, there are high chances that it would be lower than both your existing loan rate and usual credit card interest rate.
Balance transfer cards may outweigh a personal loan, however, in one particular scenario personal loans are any day the best option.
What’s the situation?
While superficially both credit card balance transfer and personal loan may appear to be almost the same, but the time period makes a crucial difference. If you are looking for loan consolidation for a longer period of time, personal loan is more beneficial because the 0% interest rate on card transfer would only be for a short duration by the virtue of being promotional. Post that, usual credit card rates will apply. Even if the promotional period extends for say a year or two, after that you will be required to shell out the entire amount. Loans are usually for a much longer period of time, and in that case credit card transfer won’t really ease your financial burden.
Predictability factor
From a long-term repayment perspective, personal loan interest rates are highly predictable and come with a certainty. In fixed-term personal loans, the rate of interest would remain constant for the entire loan duration irrespective of market fluctuations.
This means that the monthly payment too would remain fixed, even after a long time, and you don’t have to worry about a sudden hike in interest rates.
Fixed Repayment Timelines
The banks and lenders will tell you beforehand about the total debt you need to repay. Personal loans have a fixed timeline, so you will get the exact date when your liabilities will be over.
Multiple Options
With a wide variety of personal loan options available in the market at competitive interest rates and other benefits, you can find one that’s best suited for you. While the 0% interest rate option in balance transfer cards seems appealing and the best deal, it’s noteworthy that these are mostly promotional schemes for a short timeframe.
Interest Rates
When you are eyeing repayment of a long-duration loan, interest free loan for a year or two, and then usual interest rates, won’t really benefit you at all. Keep the loan-duration in mind, and then make the decision. If you have a good CIBIL Score and a long association with the bank or the lender, then you will be eligible for an even lower instant personal loan interest rate.
Conclusion: While a balance transfer card may appear beneficial for short-term, in case of a long-term loan repayment personal loan is far better because of fixed interest rate, no fluctuations, and set time limits. If you are looking at applying for a personal loan for debt consolidation, then Finserv MARKETS offers personal loans at most competitive rates.