Loan portability: What is the role played by a personal loan EMI calculator?
Personal loans: At the time of porting a loan, it is vital to compare the total interest payable to the new lender vis-à-vis interest payable currently. However, one should make sure the interest differential is more than the processing fee (and other additional cost) incurred during the portability
Do you have an offer to port your current personal loan from one bank to another? If yes, it is vital that you do your calculation incisively and take a well-deliberated decision after factoring in all the costs such as the processing fee and total savings which accrue on account of porting.
Let us suppose you have raised ₹5 lakh loan (for a duration of 36 months) at 11 percent interest per annum. Then you receive another offer for 10.5 percent per annum while you have already repaid the principal amount of ₹50,000 (in 4 months).
However, this would trigger a processing fee of ₹3,500. In the second scenario, you have a similar offer of 10.5 percent, but the processing fee is lower this time i.e., only ₹1,500.
How will you compare the offers as described above?
Notably, a better offer with a lower interest rate is usually made by the bank when your credit score is impressive. For instance, borrowers with a high credit score are typically offered loans at a lower rate of interest. Conversely, borrowers who have a low credit score are offered loans at a higher interest rate.
You can use a personal loan EMI calculator to carry out this calculation.
Current interest 11 per cent
| Particulars | Details |
|---|---|
| Time left | 32 months |
| Loan outstanding | ₹4.5 lakh |
Interest outstanding (A) | ₹71,266 |
Scenario I
Particulars | Details |
|---|---|
| Interest | 10.5% |
| Time left | 32 months |
| Loan outstanding | ₹4.5 lakh |
| Interest outstanding (B) | ₹67,889 |
| Total savings (A-B) | ₹3,377 |
So, if the new has a processing fee of ₹5,000, it does not make sense to port the loan because it turns out to be more expensive (5000 > 3,377).
In scenario II, when the total savings of ₹3,377 are more than the additional cost of ₹1,500, it would make sense to port the loan from your current bank to the second bank.
(Note: Remember that personal loan has its own set of risks)
Catch all the Instant Personal Loan, Business Loan, Business News, Money news, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.