Dev Singhraha
Relocation Expert
Loan borrowers always have the option to switch their loans from one lender to another. But most often they hold themselves back from doing the same.

 One reason is that when you approach the current lender and tell them about your decision to move to another lender because of lower interest rate, the existing lender might offer you the same interest or something around that. Banks and financial institutes do not want to lose their customers and to service them by providing them with competitive loan rates is a practice they have adopted.

But there are more reasons why the borrowers do not prefer to switch loans:
 
  • When you switch home loans, the new loan lender will accept your application as a new one, and the borrower will have to go through the entire process of home loan application all over again. That is, they will have to submit all the necessary documents again, your identity proof, address proof, your income proof. The banks or the lending institution will go through your application and will consider if you are a fitting candidate for the loan or not.
  • It is possible that the banks can reject your application if they do not deem your application convincing enough. As there is no formal set of rules set up by Reserve Bank of India, every bank follows their own rules for the loan switch, and it can be an unnecessary hassle.
  • The previous bank will not hand over your property papers to the new lender unless the new one has paid them the entire loan amount. The banks still welcome the loan switchers to build a stronger customer relationship.
  • There are many monetary conditions applicable in the case of loan applications. If you applied for the loan previously with a partner and due to unfortunate circumstances they are not able to contribute their share of the amount in the loan; then the new loan lender can reject your application. Also, if your repayment history is not good, the original lender can reject your application on the same ground.
  • When you decide to switch the loan, you will have to pay for the stamp duty, franking charges, processing fees, notarization cost etc. all over again. It is on to the borrower to make the calculations and figure out if switching the home loan is a good option or not.
If changing the home loan lender is not fetching you enough then it is a good idea to stay with your original bank. One can always negotiate with their current lender and ask them to reduce the interest rate, most likely they will.  There’s always a risk when switching the loan lender. You might end up souring the relationship between you and the current lender, and in future, they might hesitate to lend you a loan.
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