Home Renovation: Home Loan Top Up or Personal Loan?
Often in life, you may be faced with one or more financial obligations, without having the necessary funds to fulfil them. In such cases, one of the most promising alternatives seems to be approaching a bank on an online lender to Apply for Personal Loan.
While Personal Loan applications are easily sanctioned, if you think twice, the repayment of this loan can significantly increase the strain on your finances, owing to its comparatively high rate of interest.
So what do you do in such a situation? Well, if you are already servicing a Home Loan, you can quickly get a Top-up Home Loan from your mortgage provider! In fact, in some case, a Top-up Home Loan may prove to be more beneficial to you, in many respects. If you are wondering, what exactly is a top up loan, and how to get it, let us spill it all out for you!
As the name suggests, a top-up loan is a credit that you get above and beyond your existing Home Loan. While the rate of interest and terms of the loan may vary from one bank to another, all banks and non-banking financial companies (NBFCs) offer this loan, albeit only if you enjoy an excellent credit history.
There is a popular misconception that this loan can only be used for purposes such as construction or renovation. However, the fact is, it can be conveniently utilised towards educational, medical, business or even wedding expenses, just like a Personal Loan. In order to get this loan, it is also essential that your Home Loan limit is not already exhausted, and you still have some room for a top-up. If all the criteria are met, you can expect to get the bank’s approval within 2-3 working days.
A Personal Loan, on the other hand, is an independent loan which you can take from a lending institution of your choice. If you enjoy a good credit history, you can get it for a lower interest rate. However, if your repayment track record has some glitches, you should not be surprised, if the loan comes at a hefty price. An unsecured credit, a Personal Loan is usually approved within 1-2 days, and you can use the disbursed account as per your convenience.
Now that we are clear about the basic principle behind a top up loan and a Personal Loan let us take a close look at the different aspects, which will have a direct impact on your decision.
In the case of a top-up loan, your Home Loan agreement will act as the collateral. In the case of a Personal Loan, you do not need to offer any guarantee to the lender.
The rates for top-up loans are usually 1-2% higher than the prevailing Home Loan rates. Hence, you can expect to get these at about 11-14%. Personal Loan interest rates, on the other hand, vary from 11-22%, depending on your credit history. This significant difference in interest rates, if what makes the former a preferred choice for many.
As mentioned earlier, the top-up loan amount will be confined to your Home Loan limit. It may fluctuate depending on your repayment history, as well as the current market value of your home, on which the loan has been sanctioned. In this case, it is beneficial to opt for a top-up loan, only after a minimum period of 3-4 years from availing the Home Loan.
As far as Personal Loans are concerned, you can enjoy an amount of up to 25 Lakhs, depending on your credit history, and income.
With top-up loans, you can enjoy a long tenure lasting anywhere between 10-15 years or even more, as per your existing Home Loan tenure. A Personal Loan, however, will have to be repaid between 1 to 5 years at max. Given the longest tenure of the top-up loan, you can conveniently repay the same in smaller equated monthly instalments (EMIs), without bearing any additional financial strain.
In case you are using the loan towards additional construction or renovation of your home, you can avail certain tax benefits of top-up loans. You may not be able to avail such benefits on a Personal Loan.
To sum up, one can easily point out that top-up loans come with their own set of benefits, which make them a preferable alternative. An additional advantage of this loan is minimal paperwork, as your bank already has all that it needs to verify that you are an eligible borrower. Hence, if you enjoy a good repayment history, a top up loan can and should be the right pick for you!
Also Read: 8 Unique Renovation Ideas for Your Home
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