What is a Top-Up Loan?
An additional loan taken over and above the primary loan applied is called a top-up loan. This is generally possible if you have an existing relationship with a bank/financial company you are already servicing a loan with and only after a certain amount of time has passed since the primary loan was given to you. If your current loan lender refuses to offer you a top-up, you also have the option to transfer your current loan balance to another lender (that offers you a lower interest rate for the same loan) and seek a top-up with them. Top-ups generally come with less documentation, low interest rates and nominal processing charges. Fincity’s expert advisors highly recommend going for a top-up to an existing loan than going for a fresh business or personal loan because of its obvious benefits such as considerable saving on interest, higher disbursal limit and the fact that the monthly charges will be added to your existing EMI for the primary loan, making repayment less of a headache.
Although considerably simpler in process, it’s not always guaranteed that an existing lender will approve your top-up application. Your chances are determined by factors such as your income, repayment capacity and other financial obligations.
When to Opt for a Top-Up Loan?
If you’re wondering in what situation you should for a Top-Up Loan, here are some reasonable ones:
Extension to an Existing Loan
If you have a primary home loan with a lender, you can apply for a top-up over that to finance other needs such as furnishing and fixtures. Besides this, you can also use this additional fund for your medical expenses, family vacation or even to pay off your credit card debt(s)
Remember that multiple loans have a negative effect on your credit score. Therefore taking a loan under the same primary loan and consolidating debts is an advantage. It helps lower your expense towards interest and also makes payments easier.
Other Financial Needs
There are multiple reasons you may need urgent funds for. With minimal processing fee and quick disbursal, this is an ideal way to meet your financial needs sooner, be it for wedding expenses, education fees and unforeseen emergencies.
Note : If you find yourself in a situation where you need the extra funds but the lender offering you the primary loan does not entertain a top-up, you can always use the Balance Transfer feature to transfer the current loan and request that additional top-up that you wish to. Fincity can help you choose one with the lowest interest rate and assist you along the way to ensure maximum savings.
Advantages of Top-Up Loans
There are numerous reasons why people prefer topping up a certain amount to an existing loan compared to going for a fresh loan from scratch. Here are the most prominent ones:
: Since the lender already has a pre-existing relationship with the borrower and is aware of their credit and repayment history, the documentation process while availing a Top-Up loan is generally less stringent. However, the documents necessary might vary a little based on the lender you opt for.
No Collateral Needed
: For a Top-Up loan you do not need to provide a collateral as security to the lender and, in most cases, you don’t even need a guarantor. This makes the process much faster than taking a new loan.
Competitive Interest Rates
: It is well known that lenders offer Top-Ups at lower interest rates than other kinds of unsecured loans. That is why it is always smarter to go for a Top-Up on an existing loan if you have one. Plus, the lender may also offer you the option of choosing between a fixed and floating interest rate.
: Interestingly, the loan tenure for a Top-Up can be longer than that of personal loan but cannot exceed the outstanding tenure of the primary loan. But it depends on various factors such as your repayment capability, applied loan amount and current outstanding amount.
: The existing relationship with the lender helps speed up the process of sanction and disbursal of the funds and makes it easier to avail than a personal loan.
: Certain banks offer additional benefits like a Top-Up loan on Loan Balance transfer. This makes it easy for you to avail of an additional loan even if your current lender doesn’t approve your application for one.
Easier Payment with Consolidated EMI
: Consolidating your loans can help remove the additional burden of paying off loans individually and even reduces the chances of forgetting and missing EMI payments. Most banks and financial companies allow borrowers to repay the original and Top-Up loans in a consolidated Equated Monthly Instalment (EMI). It also brings down your overall interest cost.