5 Reasons a Top up loan is better than a new Personal Loan

Without a doubt, buying a house has always been one of the significant financial investment that anyone can take. A majority of the youth today already have home loans running in their names. However, imagine the scenario where you are going through a financial crisis while actively repaying an existing home loan. There are several expenses that an individual incurs in his or her lifetime such as emergency medical bills, tuition fees and so on. A good number of us in such situations always turn toward personal loans. Prior to making any hasty decision, do consider taking up a top-up loan instead of a new personal loan.

What is a Top-Up Home Loan?

In case you have an active home loan, then your lender might allow you to borrow extra funds on top of your existing loan. Such an additional loan offered by your bank is known as “Top-up Loan”. Any lender will offer top-up home loan only to those customers who have a very good payment history. So, in case you are a customer who is very good in making prompt payments, then you can definitely consider this option.

How is Top-up Loan better than Personal Loan?

Following are 5 reasons why getting a Top-up loan is better than a availing a new Personal Loan:

  1. Low Interest Rates: As the top-up loan is taken over an existing home loan, the interest rate charged on this loan is quite less when compared to a new personal loan. A personal loan usually comes with a high interest rate as it is an unsecured loan. As top-up loans are offered to customers who have availed existing home loans, you will not have to offer any additional security as your home is already kept as collateral. Hence, with top-up loans, you can enjoy the benefit of paying lowest interest on the principal amount.


  1. Flexible Loan Tenure: Top-up loans usually come with a very flexible loan repayment tenure period. As home loans are offered for tenures of more than 20 years, taking up a top-loan will provide you an extension on the loan tenure period. In general, a longer tenure period is offered on top-up loans when compared to personal loans. This difference makes availing a top-up loan more attractive when compared to personal loans.


  1. Tax benefits: Once you get your top-up loan, you can utilise the funds for any pre-defined reasons such as home expansion and renovation or to avail certain tax benefits. You cannot do the same through a personal loan. Therefore, it is always better to know about the tax benefits which you can receive from your lender before opting for a personal loan.


  1. Processing time:  The time required to get your personal loan processed can be quite long. The lender will have to go through your documents, understand your requirement and your profile, and even verify the submitted documents. This makes the process a bit lengthy. However, in case of a top-up loan, the lender will already have your verified documents and details, which in turn reduces the processing time.


  1. Pre-payment penalties:This factor must be considered while comparing top-up loans and personal loans. In case of top-up loans, the customer will not be levied any penalties for pre-payment of the loan amount according to a mandate issued by the RBI. The same is not the case with a personal loan. If you wish to prepay your personal loan amount prior to the stipulated tenure period, the lender might charge you a prepayment penalty. The penalty is usually around 3-4%.


Always make sure to go through these differences while comparing top-up loans and personal loans before incurring any debt.