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Top Up Loan vs. Additional Loan: What is Better for You?

Updated on: 28 Sep 2022 // 17 min read // Home Loans // Personal Loans
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Whenever we are in a dire need for urgent cash, we start evaluating the available options to draw the required funds from friends, relatives, banks or financial agencies. However, borrowing funds from friends and acquaintance is not an option always. For, most of us desire complete privacy in case of financial matters. Some of the readily available formal credit options include Personal Loans, Loan against collateral, Top-Up on your existing loan and so on.

Top-Up and Personal Loan are two quick unsecured loan forms. Anyone with a stable income and decent credit history and credit score can apply for the same. However, sometimes when we already have a couple of EMIs to pay every month, the choice of an additional loan may not be a straightforward one. Let us understand the difference between the two credit options below.

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What is a Top-Up Loan?

A Top-Up Loan is an additional loan borrowed over and above your existing loan from the current bank or financial agency. Top Up loans are generally drawn over existing Home Loans. It is an add-on facility offered by banks to select customers after successful completion of the specific duration of the loan tenure. You are pre-approved for a Top Up offer and using the offer entails multiple benefits to the borrower. Utilising the Top-Up Loan, you save the processing charges and other formalities which are applicable in case you apply for a fresh loan.

What is an Additional Loan?

An Additional Loan could be a Personal loan or any other secured loan. There is no obligation to take the credit from the existing loan provider as it is a fresh loan by itself.

Making the decision: Top-Up Loan or an additional Loan?

Documentation process:

Since an Additional Loan is a new loan having no correlation with any other existing loan; you would require to go through the entire loan documentation and verification process. However, for a Home Loan Top Up or any other Top Up, you would not need to produce any documents as the lender already has your details in their records.

Approval process:

An additional loan will go through its own standard process and time for verification and approval. It would thus take more time to get approval for a new loan as compared to a Top Up Loan from your existing bank. Top Up Loans usually have a swift turnaround time as you already have an existing loan from the bank and they wouldn’t take much time to process the request.

Tenure of the loan:

The tenure of a Top Up loan can be at par with your existing loan. In case of a Home Loan Top Up, you can borrow for up to 20-30 years. Most Home Loans such as Andhra Bank Home Loan and PNB Home Loan are offered for up to 30 years of tenure. Thus, you have more flexibility to avail lower EMIs on Top Up Loan. You can assess the new EMI using the Home Loan EMI calculator. However, a new Personal Loan or any other secured loan such as Car Loan is available for a shorter term such as 3 to 5 years. Thus, your EMI is going to be on the higher side as compared to the Top Up Loan.

Interest Rate:

Next, comparing the two loans on the “rate of interest” can be a major differentiator. In most cases, a Top Up Loan is offered at the same interest rate as the existing Loan. However, the additional unsecured loan like a Personal Loan may attract a higher rate owing to your existing debt liabilities and monthly income ratio. 

Options of Banks:

A Top Up Loan is availed from the existing lender, and thus there is no choice to explore other options. However, for an Additional Loan, you can explore more offers and terms and conditions as per your requirement. You can compare the loan amount, rate, duration, and EMI burden before choosing a new lender.

Loan amount:

Top Ups are generally preapproved offers to existing customers of the bank. So the offer would depend on your current loan and sanctioned limit. For instance, in case of a Top Up on your Home Loan, you can apply for an amount up to 75 % of the market value of the property; which may vary from bank to bank. However, if you apply for an additional loan, then the sanctioned loan would depend purely on your credit profile and current assets and liabilities.

Based on all these factors you can understand the difference between a Top Up Loan and any other additional loan. There is no one-size-fits-all advice here. Based on your personal situation and requirements, you must assess the available choices and choose the most affordable option of all.

Also Read: Why Should You Avail a Home Loan Top Up to Fund Your Basic Needs

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