How to Save Money with Loan Debt Transfer | Money

Learn how you can profit by transferring your existing loan to another bank at a lower interest rate. Debt transfer steps, early closure advantages, and insurance refund tips are here.

Yes, dear friends, hello everyone! I hope you are well. Today, we will touch upon a very important topic on how we can be more advantageous, especially when using loans or banking products: saving money, or even making a profit, so to speak, by transferring loan debt! Imagine, you have an existing loan, and the bank tells you, “Let me waive 3-4 of your installments.” Sounds good, right? Well, it’s possible!

What Is Debt Transfer And Why Is It Done?

In banking, there is a product known as “debt transfer” or “debt consolidation loan.” The basic logic is this: You close your existing loan debt at one bank (let’s call it Bank A) by taking out a new loan with more favorable terms from another bank (Bank B).

So, why would Bank B offer you a better deal to close your debt at Bank A? There are several reasons:

1. Customer Acquisition: Banks constantly want to acquire new customers. They aim to increase their market share by making you their customer.
2. Competition: The banking sector is highly competitive. Acquiring a competitor bank’s customer (and their loan) is a success for the bank.
3. Interest Rate Changes: You might have taken out your loan during a period of high interest rates. If market interest rates have decreased, another bank might offer you a lower interest rate compared to your current situation.

This is where the debt transfer loan comes into play. Bank B tells you: “Become my customer, close your high-interest debt at Bank A with my lower-interest loan, and thus pay less.”

How To Profit From Debt Transfer? (Calculation Logic)

This is the most critical point. You need to calculate correctly how you will profit. During my time in banking, I helped hundreds of customers with this, and I saw significant advantages when the calculation was done correctly.

Don’t Fall into the Wrong Calculation Trap!

A common mistake is focusing on the total repayment amount of the new loan or the reduction in the monthly installment amount. However, the real comparison should be made based on the remaining term with the same monthly installment amount.

Correct Calculation Example:

Let’s say you have a personal loan at Bank A:

• Remaining Monthly Installment Amount: 1,000 TL
• Remaining Term: 24 months
• Total Amount to be Paid in Current Situation: 1,000 TL x 24 months = 24,000 TL
• Loan Early Closure Amount: 20,000 TL (This amount includes the remaining principal and accrued interest; you need to learn this from your bank.)

Now, you went to Bank B and discussed a debt transfer. Bank B offered you a 20,000 TL loan (the amount needed to close the debt at Bank A). Here’s the point to pay attention to:

• New Loan Amount: 20,000 TL
• Monthly Installment Amount of the New Loan: Calculate it as 1,000 TL again! (Don’t change your current payment capacity to make the comparison easier.)
• Term of the New Loan: Let’s say the calculation results in a term of 20 months.

Result:

• In the old situation, you would pay 1,000 TL for 24 months.
• In the new situation, you will pay 1,000 TL for 20 months.

Here is your profit: 4 months x 1,000 TL = 4,000 TL! It’s as if the bank gifted you 4 installments. This is the logic of debt transfer. If the term of the new loan, with the same installment amount, is shorter than the remaining term of the old one, you are profitable. If the term came out as 25 months, this transfer would not be logical for you.

Is Debt Transfer Possible Within The Same Bank?

Yes, this is also possible, but it’s a rarer situation. During periods when interest rates have significantly dropped, you can talk to your own bank about the possibility of closing your existing high-interest loan with a new, lower-interest loan from the same bank (refinancing). Although banks generally prefer transfers to other banks to diversify risk and acquire new customers, they might sometimes offer this facility to their own customers to avoid losing them. When I was in banking, I know we closed a customer’s loan taken at 5.50% interest with a new loan at 3.50% interest from our bank a few months later when rates dropped. The customer had asked, “I don’t need a loan, but my old loan is at 5.50. Would I profit if I close it with this 3.50?” and when we calculated, they indeed profited.

Early Closure Advantages And Things To Know

There are also important points you need to know about early closure, which is the basis of debt transfer:

No Early Closure Penalty! (For Personal Loans)

This is one of the most important pieces of information: There is no early closure penalty for individual personal loans (ihtiyaç kredisi)! The situation might be different for mortgages or commercial loans, but when you close your standard personal loan before its maturity date, the bank cannot demand any penalty or additional fee from you. If a banker mentions a possible “early closure penalty,” state that it’s a personal loan and there is legally no penalty.

Life Insurance Refund

Life insurance is usually taken out when getting a loan. This insurance ensures that the remaining debt is paid by the insurance company in case of death and is actually an important safeguard. When you close your loan early, you have the right to get a refund for the portion of the life insurance premium corresponding to the unused period.

• Example: You paid a 3,000 TL life insurance premium for a 2-year (24 months) loan. You closed the loan after 1 year (12 months). You can request a refund for the unused 12-month period (approximately 1,500 TL, deductions may apply) from your bank or the insurance company.
• Don’t Forget to Ask: Don’t forget to ask the banker, “I’m closing my loan early, could you please refund the remaining premium of my life insurance?”

File Fee Refund

The file fee (dosya masrafı), which might be a very small amount or non-existent, taken at the beginning of the loan is generally not refunded upon early closure. However, if you exercise your right of withdrawal within the first 15 days after taking the loan, you can get back both the file fee and the life insurance premium (all or most of it). In this case, you only pay the interest for that 15-day period.

Additional Information And Tips Regarding Life Insurance

• Negotiation: Life insurance premiums can vary from bank to bank. Try negotiating if possible.
• External Purchase: If the premium offered by the bank is very high (sometimes figures like 10-20 thousand TL are heard!), you have the right to purchase your life insurance from another insurance company and submit the policy to the bank (with a collateral assignment clause, dain-i mürtehin).
• Cancellation (Risky): Some customers call customer service after taking the loan to cancel the life insurance. Life insurance is not legally mandatory. However, the bank might offer a higher interest rate to an uninsured customer (like a “Life-insured loan interest rate”). Also, you take on the risk of the debt falling onto your heirs in case of death. Although I personally don’t recommend this method, I hear it’s done. Instead of directly telling the banker “I don’t want life insurance,” some use this method.
• Recommendation: You never know what might happen in life. Getting life insurance with reasonable premiums, if possible, can secure both you and your family.

How Does The Debt Transfer Process Work?

1. Current Loan Information: First, find out the remaining principal, remaining number of installments, and most importantly, the early closure amount of your current loan from your bank.
2. Getting Offers: Get offers for a debt transfer loan from other banks (or your own bank). When getting offers, ask what the term would be if the monthly installment of the new loan is kept the same as your current loan’s installment.
3. Comparison: If the term of the new loan with the same monthly payment is shorter than the remaining term of your current loan, the transfer is advantageous.
4. Application and Approval: Once you find an advantageous offer, apply for the loan.
5. Closure Process: When the loan is approved, your new bank will usually either send the money directly to your old bank to close the debt or give the money to you and ask you to close the old loan and bring the closure receipt (dekont). This process may vary between banks.
6. Insurance Refund: Don’t forget to request the life insurance premium refund after closing your old loan.

Points To Consider And Risks

• Correct Calculation: The most crucial point is to perform the term comparison described above correctly. A lower monthly installment or reduced total interest can be misleading. Shorter term with the same installment = Profit.
• Additional Costs: Consider potential additional costs of the new loan, such as a file fee (if any) and the new life insurance premium. However, debt transfer loans might not have a file fee, and the insurance refund can offset this cost.
• Interest Rates: Market interest rates change constantly. Evaluate whether the transfer is genuinely advantageous based on current rates.
• Credit Score: Applying for loans too frequently can negatively impact your credit score. Do your research well and apply for the most suitable offer.

Final Word

Debt transfer, when done at the right time and with the correct calculation, is a powerful tool that can help you save significantly on your existing loans. It’s possible to benefit from bank competition and turn falling interest rates to your advantage. However, it’s always crucial to be careful, learn all the details, make the comparison correctly, and especially focus on the term comparison based on the same monthly installment amount. Remember, financial decisions require knowledge and attention. Analyze your own situation, talk to banks, and make the most informed decision. By sharing your experiences and the good loan opportunities you find in the comments, we can support each other.

Take care, stay financially literate!

Bibliography

• Özmen, Mustafa. Bankacılık Uygulamaları. Beta Basım Yayım Dağıtım, 2018. (Contains information on general banking products and operations.)
• Akgüç, Öztin. Finansal Yönetim. Avcıol Basım Yayın, 2017. (Covers basic finance principles like interest rates and loan valuation.)
• Law No. 6502 on Consumer Protection. (Relevant articles regulate consumer rights in loans, early payment, and right of withdrawal – General reference)
• Regulations and Communiqués of the Banks Association of Turkey (TBB) and the Banking Regulation and Supervision Agency (BDDK). (Current regulations on banking practices and consumer rights – General reference)

(Note: This bibliography does not claim to be the direct source for the specific strategies or current interest rates mentioned in the text. However, it provides examples of fundamental references in related literature or legal regulations where the banking products, consumer rights, and financial management principles mentioned are generally discussed.)

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