A top-up loan is the additional funds acquired on an existing loan. It is quite different from a personal loan where the borrower is free to use the funds as per their discretion. If the initial advance is insufficient in dealing with your financial liabilities, you can easily opt for additional credit from the same lender. Doing so would qualify the second advance as a top-up loan.
Since these loans are borrowed from the same lender, one has to undergo lesser hassles when it comes to documentation or other formalities. It is, however, necessary for a borrower to have a good payment history on the existing loan. Only then the lender will be convinced to provide additional funds to him.
Often a comparison is drawn between top-up advances and personal loans. In certain ways, top-up loans are considered as a cheaper fund alternative than a personal loan.
Why should you choose a top-up loan over a personal loan?
Both top-up, as well as personal loans, have specific features to meet fund requirements perfectly. But when it comes to choosing one between the two, top-up advances have an upper hand. Here’s why-
Lower interest rates– Since personal loans are unsecured, they come with comparatively higher interest rates. On the other hand, top-up advances on a home loan have property as collateral, which is why a lender charges limited to interest on them. Top up loan interest rates being cheaper, helps you save a significant amount on the overall interest outgo in the long run.
Tax benefits- You claim tax deductions on a top-up the loan when you have used it for pre-defined reasons like home renovations, expansions, etc. In the case of personal loans, if a borrower uses the funds to renovate or expand his house, he might not be able to claim tax deductions. You need to discuss the tax benefits in details with the financial institution before proceeding with any of the loans.
Faster approval- This is one reason why you should fulfil your urgent needs with a top-up loan. While availing a personal loan, you would be required to submit your application, provide necessary documents, and then wait for the lender to verify your eligibility before he sanctions the loan. In the case of a top-up loan, these formalities have already been completed. This reduces the loan processing time considerably and helps you receive the funds faster.
Longer repayment tenor- The repayment span allowed on top-up advances is usually longer and more flexible in comparison to that of a personal loan. Mostly the lending institutions allow the remaining tenor of the existing loan as repayment tenor of the new loan. If not, then the tenor could range up to 10 years. You can use the top-up loan calculator to check your payment liabilities by entering the repayment tenor and interest rates.
If you are seeking more benefits from the top-up advances, you can also consider a home loan transfer option. The financial burden can be substantially reduced by availing the home loan balance transfer facility.
Individuals seeking funds need to compare & understand the benefits of a top-up loan with that of a personal loan to make an informed financial decision. Selecting the right kind of fund alternative for the right purpose is extremely necessary, especially when you are trying to look for affordable options.