What is top up Personal Loan?

Top up Loan is a facility provided by banks or loan lenders to its existing customers to borrow a certain amount over and above their already existing loan, subjected to required terms and conditions as set by the lender. A Top up loan is the best option during a financial cash crunch as it provides the required finance at the right time enabling you to fulfill your dreams and responsibilities.  

Benefits of Top up Personal Loan

A top up loan facility is highly beneficial for people who are facing a financial cash crunch and in urgent need of funds.

What is the maximum tenure of the top up personal loan?

Usually, maximum tenure is about 5 years and the top-up loan facility is offered only after a  few years of your already existing personal loan giving a fair record of repayment history, no pending or defaults down the years and this also increases your loan eligibility.

Utilizing a top up loan

Top up loan which is almost similar to personal loan can be utilized for any purpose like a wedding, higher education, house renovation etc.  Top up loans are a blessing in disguise to people who are in urgent need of funds. Compare to Personal Loan Top up loan comes with better interest rates based on the prevailing track rate.

Am I Eligible to avail top up on Personal loan?

You are eligible to add top up loan only if you have an existing personal loan to top up on. The terms and conditions may vary from bank to bank depending upon your repayment track record. Considering certain factors like the outstanding loan amount pending with the bank are taken into account before the bank provides you maximum top up loan. Be sure that the outstanding loan amount you owe to the bank, as well as the top up personal loan. Since each bank would have its upper limit and the loan amount will be restricted accordingly.

Eligibility Criteria

Certain factors required to avail a top up loan is purely decided by your repaying capacity, income and commitment towards any other loans would be considered before the bank decides on the exact top of loan that can be given.

Please make note that the Bank also considers the following factors before sanctioning a top up loan like no due in EMI, no check bounce, Cibil of the customer and job stability etc.

If the following conditions are satisfied, then you can avail Top up the loan in max 2 to 3 days.

The rate of Interest for a top up loan?

Unlike the personal loan, the rate of interest for a top up loan is either same or lower by 1%.

How does Top up personal loan work?

The top up loan usually works with the fact that you have started repaying your loan, thereby decreasing your outstanding loan amount with each payment. Some of your dreams and urgent needs would be fulfilled by utilizing the top up personal loan.

Should I opt for a top up loan or a fresh personal loan?

Let’s take an example; Swaroop is a content writer, living in Mumbai with his wife and one child, with his income steadily rising over the last 10 years. He had taken a home loan 8 years ago. Now he wants to renovate his house despite not being able to save for their future. Swaroop is unable to spare any funds and he does not want to draw from his existing investments. Since the renovation is going to be a one-time expenditure, his wife suggests that they should go for a personal loan. Is her suggestion right? Should he opt for a top up or a personal loan?

Since Swaroop already has a running personal loan which was taken eight years ago with no due in EMIs, his financial advisor suggest taking a top up loan, which would be a better and faster option than a personal loan. Moreover, Swaroop will be eligible for a top up loan now since the personal loan was taken four years ago and has been sincerely cleared all the existing EMIs, he will be eligible for a big top up loan.

The documentation and overall process will be fast in case of a top-up loan, considering Swaroop is an existing customer, as there is an existing relationship and the history is known by the Bank.  He gets the benefit of longer repayment tenure with a top up loan. Well, the maximum tenure for a personal loan is 5 years while a top up loan’s tenure could go up to the remaining tenure of the personal loan. Moreover, the interest rates on top-up loan are lower when compared to a personal loan, also the top-up personal loan is secured by the property compared to the unsecured personal loan. Additionally, Swaroop will be able to claim tax benefits as he plans to utilize the top-up loan amount for renovating his existing house in Mumbai.

Considering the story of Swaroop who has a good repayment track record, availing a top-up loan may work out to be the best option with long term benefits like the lower rate of interest, longer tenure, and EMIs without having to mortgage a new property.

Advantages and disadvantages on Top up on Personal loan

However, there are some pros and cons of availing of a top up on personal loans.

Some advantages of a top-up personal loan are

  1. Quicker and hassle free documentation process, as the customer would have already gone through the loan application formalities earlier, the process to avail a top-up facility becomes relatively simpler and gets completed quickly.
  2. No collateral requirement needed since the same lender has sanctioned the loan in the past and perceives you to be a risk-free safe customer.
  3. You may take a top-up for any reason like renovation work, medical emergencies, higher education, international holiday etc.

Disadvantages of top-up on a personal loan are:

  1. One of the biggest disadvantages of a top-up is that only existing customers of the financial institutions are eligible, besides those customers with a low credit history has a lean chance of getting a top-up loan.
  2. No tax exemption as tax benefits is applicable only on loans that are taken for educational purposes and renovation of home or construction purpose.  
  3. Top –up loan for any other reason is not eligible for tax exemptions, cannot be claimed for any deduction.

A top-up on a personal loan can be taken for different reasons like house renovation, purchase of property, business expansion, higher education, marriage and many others. Top-up loans act as a great savior during times of financial troubles. Try to be smart and opt for a top-up personal loan after analyzing the pros and cons of such a loan.

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