Everything You Need To Know About Loan Swapping

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Are you not satisfied with the interest rate of the bank you took the loan from? Is the branch of the bank far away from your place of residence? Very few people know about this, but the customer can easily transfer the loan from one bank to any other bank. Nepal’s banking law allows any borrower to transfer loans to the bank of their choice. People have started looking for alternatives to change the bank. This is because financial institutions are reluctant to reduce the interest as per the reduced base rate. This is often known as ‘loan swapping’. Therefore, you can transfer the loan from one bank to another bank subject to certain conditions.

Is Loan Swapping Advantageous?

Sometimes you can get a cheaper interest rate in a new bank than the bank you applied for loan. You can get a loan at a lower cost than the existing bank, depending on your access to the new bank. You can further agree on the term of the loan.  If you get better rates than the existing bank then transferring the loan is a profitable decision. One of the benefit of loan swapping is it helps to avoid high interest rates. Also, loan swaps is not a difficult process as it is similar to taking a new loan.

How to swap loan?

At first, you need to communicate with the bank you want to transfer the loan to. And, apply for a loan transfer only after confirming the bank’s interest rate, service charges, loan term and other necessary information. Along with the loan transfer application, the new bank can transfer your loan by paying the outstanding balance in the old bank. Usually the new bank negotiates with the old bank during the process of loan transfer.

Do You Have To Pay Prepayment Fee Or Not?

When transferring the loan, you have to take money from a new bank and pay the interest of the existing bank. If the loan is less than Rupees 5 million or the amount to be paid is less than Rupees 5 million, then you don’t have to pay prepayment. Nepal Rastra Bank had provided this service.

If the loan amount is more than 5 million rupees, then you have to pay the prepayment. Also, the prepayment should be done within two years to the existing bank, and you have to pay 100 percent of the service charge paid at the beginning of the loan to the new bank. While making a prepayment within 2 to 5 years, you will have to pay 50 percent of the initial service charge. And for more than 5 years, you will have to pay 25 percent of the service charge.

When any customer takes from the bank for a long period, the bank fixes the interest and installment accordingly. However, if the customer tries to repay the loan before the stipulated time, the opportunity cost of the bank will be lost. Therefore, when a loan of more than Rupees 5 million is repaid in advance and transferred to another bank, the pre-payment fee should be paid to the old bank.

Does The New Bank Charge Application And Service Charges?

The new bank does not charge an application fee when swapping a loan. However, the banks can charge the service charge. The commercial banks are not allowed to charge more than 0.75 percent service fee as per the rules of NRB. Development banks can charge up to 1 percent and finance companies up to 1.25 percent. If you can communicate well with the bank, you can even get can get a lower service charge.

Things To Do Before Swapping A Loan

If you are planning to swap a loan, first communicate to your existing bank. Inform the loan officer bank about why you had to move the loan, where you faced the problem, how cheap interest rate you got in the new bank. If the bank intends to continue its business with you, they can offer the same interest rates and facilities. This can even help to reduce the cost without having to worry about swapping the loan.

If you do not get a good offer from the existing bank, set your terms with the new bank, including interest rate, loan term and service charges. It is wise to swap the loan only if the new bank agrees to those terms.

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