Which One is Better, a Top-up Home Loan or a New Personal Loan?

Updated on: 14 Dec 2021 // 21 min read // Home Loans
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There are a lot of funding options for you if you need money in an emergency. Personal Loans are one of them. You have different types of Personal Loans such as secured Personal Loans and unsecured Personal Loans. One such secured Personal Loan is the Top-up Home Loan.

If you have applied for a Home Loan in the past, you can always avail a top-up loan.

Let us compare the two types of Personal Loans and see which the better option is.

Personal Loans – Important Characteristics

  • Easy to get if you satisfy the eligibility criteria stipulated by the banks
  • No need of providing any collateral
  • Simple documentation process
  • Maximum loan tenure is 60 months
  • No need to disclose the end use of funds

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The Drawbacks of an Unsecured Personal Loan

  • High rates of interest
  • Stringent eligibility norms
  • Need to have a high credit score in the range of above 700

In comparison, the Top-up Home Loan is a cheaper option.

Top-up Home Loans – Characteristics and Features

  • Banks sanction top-up Home Loans if you satisfy the income criteria
  • Maximum loan tenure is more than the Personal Loan tenure. You can extend it to coincide with your original Home Loan
  • No need to disclose the end use of funds to the bank
  • Low rates of interest as compared to the Personal Loans
  • Not necessary to have a credit score as high as 700
  • As you are an existing borrower, the banks know your credit history

The Drawbacks of a Top-up Home Loan

  • The quantum of loan depends on the value of the security available with the bank
  • The approval process can take some time because of procedures like valuation, an extension of equitable mortgage, and so on.
  • The documentation process is also different from that of a Personal Loan.

Which of the Two Options is a Better One?

It depends on various factors. On specific occasions, the top-up loans can be beneficial. At the same time, the fresh Personal Loans can also have the upper hand at times.

  • Urgent need of funds:

When you need money in an emergency, the new Personal Loan is the best option available to you. The approval process is speedy. Usually, you get the funds in your account within 72 hours. It is not the case with the top-up Home Loans. The banks have to follow a set procedure. The valuation of the property is essential to ensure the coverage of both the Home Loan and the top-up Home Loan. There are other formalities like an extension of mortgage that can take time.

  • Short-term requirement:

The Personal Loans are better when you have short-term requirements. If you have a higher requirement like marriage expenses, educational expenses, medical emergencies, and so on, the Home Loan top-up is a better option. You can mobilise more funds with an extended repayment schedule.

  • The rate of interest:

The Home Loan top-up product is better than the fresh Personal Loan when you consider the rate of interest. The rate of interest on a Personal Loan can be as high as 20% to per annum whereas the Home Loan top-up interest rates compare favourably with the regular Home Loan product.

  • EMI factor:

The Home Loan top-up product has an extended repayment period. Therefore, the EMI (Equated Monthly Instalment) component is lower as compared to the Personal Loan. It leaves you with a higher disposable income on your hands.

  • Eligibility norms:

The lower EMI on the Home Loan top-up product ensures you have higher eligibility subject to the value of the property available after considering the requirement for the Home Loan. Secondly, you need not have a credit score in the range of 700 or above to avail a Home Loan top-up. Banks know your credit history because you maintain the Home Loan with them.

  • Documentation formalities:

The documentation formalities in a Personal Loan are minimal whereas it is not so in the case of the HomeLoan top-up facility.

  • The Requirement of Guarantor:

Usually, the Personal Loans require a guarantor. It is not the case with a Home Loan top-up facility.

  • Restriction of options:

When you opt for a Home Loan top-up facility, you have to approach the bank where you maintain the Home Loan account. You do not have any other choice. You can transfer your Home Loan to another bank and take a top-up. However, that is a lengthy and expensive procedure. At the same time, you have banks offering attractive top-up Home Loan offers. On the other hand, you have a variety of options for availing a Personal Loan. You can choose your bank or NBFC (Non-Banking Financial Company) from a large pool of resources.

To sum up in a single line, “The Home Loan top-up facility is better than taking a fresh Personal Loan primarily because of the cost factor.”

Also Read: Never Buy An Unapproved Property In India!

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