A top up loan is given to a borrower up and over their already existing loan. Usually, this advance is offered only to specific customers, including those who have already repaid a part of their loan or have opted for a balance transfer.
Top up loan are offered alongside housing credit to borrowers with a good credit score and repayment history. Top up loan come with no end-use restriction. Therefore, borrowers can use them for different purposes like funding a child’s education, wedding expenses, home furnishing or emergency needs.
However, to make most of this fund, one needs to know when one should apply for it.
When should one take a top up loan?
Top up loans are a great option in the following circumstances.
- When you need additional funds but don’t want to go through the usual hassles of a loan application.
- These are a preferred option for debt consolidation as it combines multiple debts and enables you to pay a single EMI.
- You require funds for personal or business use but cannot find loans with better interest rates.
- You already have an existing loan and have paid many EMIs, making you eligible for a top up loan.
Individuals should also need to know the features and benefits of this loan.
Features of a top up loan
The following are some of the features of top up loans.
- Primarily, home loan borrowers can apply for a top up loan.
- Depending on the lender’s policies, they come with long tenors (around 10 to 20 years).
- The amount granted varies with financiers but is not more than 70% to 80% of the property value.
- They come with the same interest rate as your home loan or maybe a few points higher.
- Unlike home loans, you can use the approved loan for any purpose.
- As the borrower is an old customer of the lender, the loan approval process is super quick.
What are the benefits a top up loan?
The following are some benefits of a top up loan.
- Lower EMI compared to personal loans
When a borrower needs a loan with no end-use restriction, there are only limited options available. Personal loans come with high interest rates and short tenors, which are too difficult to repay for many borrowers. On the other hand, top up loans carry almost the same interest as that of the existing home loan interest rate and, thus, a preferred option.
- Improved scope for re-negotiation
With a top up loan, the borrower already has a long financial relationship with the lender. Moreover, with time the borrower will have a higher income than earlier and a good credit score from paying several EMIs. This insists lenders grant a loan, and therefore, the borrower is now in a good negotiating position. However, borrowers should use a home loan calculator to check the new EMI payable.
- Quick approval and disbursal
When you avail a housing loan, you will submit and verify various documents like address proof, income proof and property papers. In addition, you would have already established your creditworthiness with the timely payment of EMIs. Hence, when you apply for the second loan, your lender will process the application and disburse the loan amount in less time.
- Minimal documentation
The documentation required for a top up loan will vary from lender to lender. Some will require you to submit no new documents, while others will want a basic verification. They can ask you to re-submit your KYC documents and updated bank account statement.
- Tax benefits
When borrowers get a top-up loan over their existing home loan, they are eligible for certain tax deductions. If they use the funds for purchase, construction, renovation or repair of their home, they can get income tax deductions under Section 80C and 24B of Income Tax Act.
Financial institutions provide pre-approved offers to make the loan approval process convenient and instant. Such offers are available on a range of financial products like home loans, property loan, etc. You can check your pre-approved offer by just entering your name and phone number.
The above benefits make top up loans ideal for emergencies and an excellent alternative to other loans with no end-use restriction. You can also consolidate your debt using this loan and get out of a debt trap.