Top-Up Home Loan or Personal Loan: Which One You Should Choose?

From childhood, we have been told how important it is to own a house, a place of your own. We have been inspired to invest in a house at a very young age by people around us. Many youngsters today already have an existing home loan in their name. But what if you are in a financial crisis when you already have an active home loan that you are working hard to repay? There are many expenses like tuition fees and emergency medical bills that on incurs during ones’ course of life. Most of us prefer availing a personal loan under such circumstances. Before you take that decision, stop, think again, and consider top-up loans.

What is a Top-Up Home Loan?

If you have an existing home loan, your lender may allow you to borrow extra funds over and above your existing loan. This additional loan that your bank offers is called a “Top-up Loan”. A lender would not offer a top-up loan to every customer with a home loan but to customers who have a great payment history. So, if you are a customer who makes your payment promptly, go ahead and check if you have this option.

Top-up Loan versus Personal Loan

• Interest rates: Top-up loans come with low interest rate compared to personal loans. We all know that a high interest rate is charged on personal loans as it is an unsecured loan. Whereas in top-up loans, your house acts as a collateral. As a top-up loan is offered to existing home loan customers and the bank has all the documents required, it makes it very secure. Therefore, you can enjoy low interest rate if you choose an add-on loan instead of a personal loan.
• Tax benefits: Once a top-up loan is disbursed, if you use the funds for pre-defined reasons like home renovations or expanding your house, you can avail tax benefits up to a certain amount. However, if you avail a personal loan to renovate your house, you may not be able to do so. Please check with your bank about the tax benefits you are entitled to before choosing a personal loan.
• Tenure: The tenure for a top-up loan is usually flexible. Usually, a longer tenure is allowed on top-up loans compared to personal loans. Most banks offer the remaining tenure on your existing home loan as your top-up loan tenure. This makes it a great alternative to personal loans.
• Processing time: When you apply for a personal loan, the time taken to process your application is usually long. This is because this is the first time you are applying for a loan and the bank has to check the documents, understand your profile, and verify the details. However, when it comes to top-up loans, the bank already has your documents and would have verified your details. This reduces the processing time drastically. Most banks allow their customers to apply for a top-up loan online through net banking and the bank disburses the amount in few hours.
• Simple documentation: Like mentioned earlier, when you apply for a top-up loan, the bank would already have all the documents required as you would have submitted them to avail a home loan in the first place. So, the documentation process is simple and less time consuming if you choose an add-on loan. On the other hand, you will have to fill many forms and submit various documents to avail a personal loan.

One can confidently tell that top-up loans are a great alternative to personal loans. So if you are deciding which one to choose, visit your bank and talk to someone to compare the pros and cons of both types of loans before you make a call.