An overview of “teaser loans”

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What is “change”?

It is the mechanism by which customers move their bank accounts from one bank to another to earn more interest on their deposits or obtain reduced interest on loans. Normally, the “change” takes place in the lending segment. Any loan, whether it’s a car loan, an education loan, a home loan or a personal loan, can be transferred from one bank to another.

Borrowers using switch routes are not bad, but some passengers need to be assessed before taking a flight on the route. For example, a borrower can take a dominant position and ask their existing bank for repricing options, before actually transferring their loan to another bank.

The decision to switch should be based on more factors than just the interest rate. It’s not free. As a borrower intending to take advantage of the transfer service, you should first ask your current bank if you will incur any fees to terminate your existing loan or if you can convert the loan to a loan whose price is more attractive. Check to see if any fees will be imposed on such a conversion. Before moving to the new bank whose refinance package you are considering, check how you will be better off with the refinanced package.

It should be noted that installment amounts and interest payments will change once there are changes in the loan program. Also compare the current repayment schedule of your current loan with that of the new loan you are considering and check the total amount of interest payable and other charges.

After calculating the net impact, if you find that the cost of the transfer is more than your savings after the transfer, the transfer does not make sense. It should also be taken into account that the transfer fees must be paid immediately, while your savings after the transfer will come back to you over the years.

Technically speaking, loans with low outstandings and a few years of repayment remaining are not ideal for switching. The costs involved would be higher than the expected benefits.

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