Paying 16%, 18% or more on a personal loan while others seem to get 10–12%? You may be able to move the loan to a cheaper lender. This is called a personal loan balance transfer or refinance. But personal loans often carry foreclosure charges, so a lower rate does not always mean a saving. This guide shows how to do the maths, with two worked examples.
What is a personal loan balance transfer?
In a balance transfer, a new lender pays off your old loan. You then repay the new lender, ideally at a lower rate. Your monthly instalment, or EMI (equated monthly instalment), may drop, or you may finish sooner.
Closing the old loan early is called foreclosure. The old lender may charge a foreclosure charge for it. The new lender usually charges a processing fee. These two costs decide whether the switch is worth it.
Is your personal loan fixed or floating, and why does it matter?
A personal loan can be on a fixed rate or a floating rate linked to a benchmark. Your KFS and loan agreement show which one you have.
The rate type matters because of RBI's Pre-payment Charges on Loans Directions, 2025:
- Floating-rate loans to individuals for non-business purposes, sanctioned or renewed on or after 1 January 2026: no pre-payment charges, from any regulated lender. This holds whatever the source of the money, with no lock-in period.
- Fixed-rate loans: charges follow the lender's policy. For term loans, the charge must be based on the amount being prepaid, and it must be disclosed in the sanction letter, loan agreement and Key Facts Statement (KFS). A charge not disclosed this way cannot be levied.
Your KFS is the one-page summary of your loan's rate and charges. RBI made it compulsory for retail term loans sanctioned from 1 October 2024. Find it first.
What does it cost to switch a personal loan?
Charges vary widely by lender and by when you took the loan. Some published examples:
- SBI: its personal loan KFS lists a prepayment charge of 2% on the prepaid amount if you prepay or close before 3 years, and in general no prepayment charge after 3 years. But if another bank takes over the loan and it is fully closed, 2% of the outstanding amount applies, whatever the tenure.
- Processing fee at the new lender: SBI, for example, lists 1.5% for its Xpress Credit loan, with a minimum of ₹1,000 and a maximum of ₹15,000, plus GST.
- GST: lenders often add GST to fees and charges. SBI's fee page, for example, lists its processing fee "+GST". Your KFS or foreclosure statement shows the exact amount.
So always add GST to the fees when you compare.
When is a personal loan balance transfer worth it?
The EMI formula is: EMI = P × r × (1 + r)^n ÷ [(1 + r)^n − 1], where P is the amount owed, r is the monthly rate (yearly rate ÷ 12 ÷ 100), and n is the months left. In both examples below, you pay the charges from your pocket and keep the same months left.
Example 1: a 3.5-point rate cut that loses money. You owe ₹5,00,000 at 16%, with 36 months left. A new lender offers 12.5%. Say the old lender charges 4% foreclosure and the new one charges 2% processing, and assume 18% GST on both.
Example 2: a 6-point rate cut that pays. You owe ₹5,00,000 at 18%, with 48 months left. A new lender offers 12%. Same charges as above.
| Example 1 | Example 2 | |
|---|---|---|
| Old EMI | ₹17,579 (16%, 36 months) | ₹14,687 (18%, 48 months) |
| New EMI | ₹16,727 (12.5%) | ₹13,167 (12%) |
| Saving per month | ₹852 | about ₹1,520 |
| Total EMI saving | ₹30,661 | ₹72,988 |
| Foreclosure 4% + GST | ₹23,600 | ₹23,600 |
| Processing 2% + GST | ₹11,800 | ₹11,800 |
| Net result | Loss of ₹4,739 | Saving of ₹37,588 |
In Example 1, if the old lender charged 2% instead of 4% (₹11,800 with GST), the switch would save about ₹7,061 instead. Small details change the answer.
Is there a quick rule of thumb?
Yes. Work out your break-even months:
Break-even months = total switching cost ÷ monthly EMI saving
- Example 1: ₹35,400 ÷ ₹852 = about 42 months. Only 36 months are left, so the switch never pays back.
- Example 2: ₹35,400 ÷ ₹1,520 = about 23 months. With 48 months left, it pays back with room to spare.
If break-even comes well before your loan ends, the switch may be worth it. If it is close to, or after, the end date, it usually is not. Personal loans are short, so this happens more often than people expect, especially in the last year or two of a loan.
One more caution: if the new lender adds the charges to your new loan instead of you paying them upfront, you pay interest on them too.
What do new lenders check before taking over your loan?
Each lender decides, but they commonly look at:
- Your credit score and report, including whether you have paid every EMI on time.
- Your income: salary slips, bank statements or income tax returns.
- Your total EMIs compared with your income.
- Your employer and job stability, for salaried borrowers.
- The loan's track record: some lenders may want to see several months of clean repayment.
Your credit score matters a lot for unsecured loans. Union Bank of India's rate sheet effective 8 October 2026, for example, lists salaried personal loan rates from 9.30% for scores of 800 and above to 12.60% for scores below 650.
Are there other ways to cut the cost?
- Ask your current lender first. It may match a competing offer to keep you. A request letter costs nothing.
- Part-prepay instead. If you have spare cash, check your KFS for part-prepayment terms and compare.
- Compare the APR, not just the rate. The KFS shows the annual percentage rate (APR), which RBI says must include all charges the lender levies.
- Wait for a charge-free date. If your charge drops or ends after a certain month, switching just after it may cost less. Check that the relief also applies when another lender takes over the loan: SBI's KFS, for example, keeps a 2% charge on takeovers whatever the tenure.
How do you switch, step by step?
- Get your KFS, sanction letter and latest loan statement.
- Ask the old lender in writing for a foreclosure statement showing the exact amount and charges.
- Collect written offers from new lenders, with rate, fees and APR.
- Run the break-even maths above.
- If it works, apply. The new lender pays the old one; you pay any charges.
- Get a no-dues certificate from the old lender and check your credit report after a few weeks to make sure the old loan shows as closed.
Do it in 10 minutes, free
Use the LowerMyEMI compare offers calculator to put your current loan and any new offers side by side, including fees, and export the result to Excel or PDF.
Then LowerMyEMI can write one email per lender asking for their rate, plus a letter to your current lender asking it to cut your rate. You send them from your own email. We are not a lender and never promise a rate; each lender decides.