Top-up Loans come to your rescue when there is an urgent need for some extra funds. Read on to know how it scores over Personal Loans and Credit Card Loans.
A Top-up Loan as the name suggests involves the bank topping up your existing loan in case of an additional demand. To simplify things for all, here is an example. Suppose you have a Home Loan and you have been paying the EMI’s. Now there is a need to further renovate your home or say, buy a car, and all this will require extra liquid funds. In this scenario, you approach the same bank, which gave you a Home Loan, for a Personal Loan. A Personal Loan is possible, but it would put an additional burden of an EMI. You can instead opt for a Top-up loan, which would be more affordable because of the low-interest rate.
A Top-up loan is an effective tool to fund your financial requirements at lower interest rates. Let’s us understand in detail about a Top-up Home Loan and when should you avail it.
Top-Up Home Loan Requirement
If you are looking for a loan to fund your child’s education or for home improvements, or planning a vacation, or buying your dream vehicle or investing in stock market, you can opt for a Top-up Loan. Banks would not ask you any question regarding the purpose of the loan. Hence, you are free to use it the way you want.
If you have a Home Loan, then you can easily take up a Top-up Loan as the interest rate on such loans will be lower as compared to Personal Loans or Credit Card loans. Usually, interest rates on Top-up Loans are similar to Home Loan rates or just few basis points higher. Top-up Loans are available in the range of 9% to 12% interest rates in most banks.
When Banks Offer Top-Up Loans
Usually, banks offer Top-up Loans when the value of the property is higher than the loan amount. It is a general practice that the total of balance Home Loan and top-up loan should not exceed 70-80% of the value of the property. Hence, higher the value of the property, higher will be the value of Top-up Loan.
Top-up Loans come for a longer duration than a Personal Loan, Car Loan or gold loan for the simple reason that it is additional debt on the Home Loan which in itself runs for years. Usually, Top-up Loans run for 20 years or until the balance tenure of your original Home Loan, giving you more time and opportunity to repay it.
Top-up Loans also provide tax benefits, however, it can only be availed if the top-up loan is used for repair, extension or construction of the house, or if you are using it to fund your or your child’s education.
Criteria For Availing A Top-up Loan
- You should have a good repayment record before you can apply for a Top-up Loan. Usually, banks prefer that you should have a satisfactory repayment record of at least a year.
- You should have made a valid mortgage of your property in the name of the bank.
You can contact your bank to apply for a Top-up Loan. A Top-up Loan is easily approved as you are already an existing member of the bank, however, it should not overburden you, but fulfil your financial requirements.