Transferring a personal loan directly to another individual is not feasible. Personal loans are approved based on your creditworthiness, income, and financial history. The lender approves the loan specifically for you. Here’s why transferring a personal loan directly is not possible:
- Non-transferable debt: Personal loans are typically non-transferable. The loan agreement you entered into is between you and the lender.
- Credit check and income verification: Lenders evaluate the borrower’s creditworthiness and income consistency before loan approval. The new individual would have to undergo a distinct credit check and income verification process to be eligible for a new loan.
However, some banks or NBFCs do offer loan transfer facilities. A loan transfer (also known as a loan assumption) can be possible under specific conditions. Generally, it occurs when the original borrower is unable to meet the repayment obligations. This way, the lender still has an alternative party who can fulfill the debt repayment.
A typical instance of a loan transfer is when the responsibility for repaying a personal loan is shifted entirely to a co-signer or guarantor due to the borrower’s default. If you have a personal loan, a loan transfer might be a solution to alleviate your debt burden, address financial challenges, or obtain more favourable loan terms. However, transferring loans to another party comes with various implications, so it may not always be the best option.
There are alternative options if you’re seeking to assist someone or to get out of a personal loan you can’t manage:
- Co-signing a new loan: The other individual can co-sign on a new personal loan. They should possess a good credit history to qualify for a competitive interest rate.
- Debt consolidation loan: You can consider a debt consolidation loan to merge your current personal loan and other debts into one loan with a possibly reduced interest rate. This could streamline repayment and potentially increase available cash flow.
- Loan settlement: If you’re having difficulty repaying the loan, negotiate a loan settlement with your lender. This could entail paying a lumpsum to resolve the debt for less than the total amount owed. However, settling the loan can negatively impact your credit score.
- Selling an asset (if secured loan): If your application for personal loan is backed by collateral such as a car, you may be able to sell the asset and use the funds to settle the loan. This would necessitate approval from the lender and could lead to a shortfall depending on the loan amount and the value of the asset.
Borrowers should be aware that the optimal course of action depends on their circumstances and financial objectives. Consulting with a credit counsellor or financial advisor can assist you in identifying the most appropriate options for your situation.
Frequently Asked Questions (FAQs)
Q. How can I assist a friend in obtaining a personal loan?
You can co-sign a new loan for them if you have a strong credit history. This means you become legally accountable for the repayment if they fail to pay.
Q. When should you consider adding a co-applicant to your personal loan application?
If you have a low credit score, you may also think about applying for a loan with a co-applicant or a guarantor. Applying for a joint loan with your spouse, a close relative, or a friend who has a strong credit score can help leverage their rating for approval. Additionally, with the consent of your guarantor or co-applicant, you will need to provide a few signatures and complete KYC formalities for the loan. Having a co-applicant is likely to improve your chances of loan approval and could even secure you a more competitive interest rate on the personal loan.
Q. How does failing to repay your personal loan impact your relationships?
Failing to repay your personal loan affects your credit scores, adds to your debt load, and makes it challenging to obtain new credit. Consequently, your repayment options become limited, and you may need to depend on financial assistance from friends and family to settle the debt. This can create additional tension in your relationships.
Q. What are the benefits of applying for a personal loan online?
Applying for a personal loan online can save you a significant amount of time and effort since you can do it from the comfort of your own home. Some third-party financial services websites also provide paperless approval, meaning you won’t need to submit any documents to the lender for loan approval. Additionally, the application process is entirely secure.
Q. What is the loan repayment period for personal loans?
Most banks and financial institutions permit borrowers to select a loan repayment period ranging from one to five years, depending on their preference.
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Published: 09 Apr 2024, 09:46 AM IST