This is a question many borrowers ask as there is a misconception that banks / institutions charge majority of interest in the initial years and shifting of loan will make them pay interest to another bank/ institution again. This is a false notion.

Loan repayment is AMORTIZED over the repayment period which means borrower has to make scheduled fixed monthly payments over the term of the loan which covers both principal and interest and is structured in such a way that by the end of tenure loan is paid off fully. An AMORTIZED loan is based on EMI payments which consists of following:-

• An interest payment based on the unpaid principal balance as of the beginning of the month
• A principal payment that will cause the unpaid principal balance to decrease each month so that the principal balance will be zero at the time of the final payment

Although the total amount of each monthly payment remains the same, interest and principal payments will be changing as follows:

• The interest component of each monthly payment will be decreasing (because of the monthly decline in the principal balance)
• The principal component of each monthly payment will be increasing

The above explanation of how loan amortization works clearly demonstrates that interest is charged on PRINCIPAL BALANCE at the beginning of the month so even if a loan is transferred to another bank after running for a few years the interest charged will always be on the PRINCIPAL BALANCE at the beginning of the month and this figure will remain always be lower when loan is shifted as better rate of interest will be offered by the new lender assuming loan term is kept the same.