Top Up Loan – Should You Avail a Top-Up Loan?

Updated on: 14 Dec 2021 // 26 min read // Home Loans
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Financial uncertainties have become part and parcel of modern life. It is, therefore, possible to face cash lapses in life despite the best of the steps towards financial planning. Thankfully, there is an option of availing a bank credit to take care of your requirements. With multiple financial institutions operating in India, access to credit has become easier.

But have you already have taken a loan? Are you worried if any lender would offer you more money? Well, if you already have availed a Home Loan or a Personal Loan from a financial institution, you can still Apply for a Top-Up Loan and handle your financial exigencies without any problems.

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What is a Top-Up Loan?

A Top-Up Loan is a special type of loan that is offered to select customers of the bank. In order to avail a Top-Up Loan, you must have a running Home Loan or Personal Loan with the respective lender. To be eligible for a Top-Up, you must have paid your EMIs on time, and a specified time-period must have passed since the disbursal of the primary loan.

When you apply for a Top-Up loan, it is sanctioned as an independent loan, over and above your existing loan running with the lender.

Offering the facility of a Top-Up Loan is entirely at the discretion of the financial institution. In case, your lender is not willing to extend this facility; you can opt for a Balance Transfer to a new lender and apply for a Top-Up. This would mean foreclosing your existing loan and transferring your primary loan account to the new lender.

Features of a Top-up Loan

Though the specific features of the Top-Up Loan would vary according to the financial institution you choose, there are certain common characteristics that you should be aware of:

  • The maximum amount available as a Top-Up Loan differs across lenders. In most cases, the maximum amount does not exceed the original value of the primary loan.

  • The maximum repayment tenor against a Top-Up Loan is the remaining tenor of the primary loan.

  • The money availed as a Top-Up Loan can be used by the borrower as desired. There is no need to inform the lender regarding the usage of money.

  • In order to avail this facility, the borrower must have an existing relationship with the financial institution. If not, the primary loan must be transferred to the new lender.

  • Rate of interest charged against a Top-Up Loan is linked to the rate of interest against the primary loan.

  • As the customer already has a relationship with the lender, the applications are processed in quick time.

  • If required, lenders offer the customers the option to combine the EMIs of the primary loan and Top-Up Loan, for ease of repayment.

Benefits of a Top-up Loan

If you are wondering that why you should apply for a Top-Up Loan instead of a new Personal Loan, then the following benefits of a Top-Up Loan will help you decide:

  • Minimal Documentation and Quick Processing

    As compared to a new Personal Loan, availing a Top-Up Loan is certainly swifter and hassle free. Being an existing customer, the application is processed faster, as all the documents and repayment history are already present with your bank. As the disbursals are fulfilled in a quick time, the Top-Up Loan is ideal for handling urgent financial needs.

  • Debt Consolidation

    Top-Up Loans carry lower interest rates than most other types of loans. You can use a Top-Up to repay your high-interest Credit Card Debt or Personal Loan. This will help you with manage your finances and reduce your interest burden efficiently.

  • No Need for Collateral

    When you apply for a Top-Up Loan, there is no need to offer any collateral to secure the amount. Moreover, most financial institutions do not even require a guarantor for the Top-Up Loan. The facility is offered only after due-diligence by the lender.

  • Lower Interest Rates

    If you have been paying your EMIs for the primary loan on time, your lender is likely to offer the better interest rate deal for the Top-Up Loan, helping you save money on the interest cost.

  • Long Repayment Tenor

    Repayment tenor of a Top-Up Loan is lower than what is offered for a loan. The maximum repayment tenor available is the remaining period on the primary loan making the EMIs easier on your pocket.

Should you Avail a Top-Up Loan?

If you are facing a financial problem and are seeking additional funds in the form of a loan, then opting for a Top-Up Loan could be the best decision for you. Here are certain situations when availing a Top-Up makes more sense:

  • Extension to the Primary Loan

    After you have availed a Home Loan to purchase your new home, you need money for buying furniture, furnishings, and fixtures. A Top-Up Loan is an ideal option in this scenario as you get money at lower interest rates and can opt for a consolidated EMI for the Home Loan and Top-Up Loan.

  • Reduce your Interest Expenses

    If you are running multiple high-debt loans, then by availing a Top-Up Loan, you can reduce the burden on your finances. You can use the money to foreclose other debts and consolidate them into one low-interest loan.

  • Personal Needs

    When you need money for personal requirements like travelling, wedding, higher education or medical treatment, a low interest Top-Up Loan is the best option.

  • Improve your Credit Score

    If you want to rebuild your CIBIL score, you can apply for a Top-Up Loan and repay all your existing debt. Then by making regular repayments, you can improve your CIBIL Score over a period of time.

Although you get a lower rate of interest on a Home Loan Top Up, and enjoy greater flexibility on repayment as compared to Personal Loan; it still a loan product and should thus be availed only when it is an absolute necessity.

Also Read: Home Renovation: Home Loan Top Up or Personal Loan?

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