Top Up Loans : – Sometimes, all of your dreams want is that additional help to transpire into reality. Chasing once your dreams with a leaky piggy bank, are you? A loan might be simply the issue that corks the gaps in your financial plans.

In the loan market there are a myriad of choices to decide on from and a prodigious number of lenders. The challenge is how to want that product fulfills your wants best. One such lesser known option is top Up Loans.

What is a Top Up Loan?

As the name suggests it’s an extra loan on your existing home loan with a bank, hfc or NBFC. This loan is taken over and higher than the existing home loan account, home improvement loan or home extension loan.(HFC -Housing finance company & NBFC – Non Banking financial Company)

In different words, if you have got an active home loan account with XYZ Bank then you may ask for an extra loan, over and higher than your outstanding loan amount. it’ll not be counted as a realignment of your home loan outstanding.

This is as a result of the proceeds from a top Up loan is used for anything you want vis-à-vis a home loan is used just for buying or constructing a house.

You can use your top-up loan for anything like pay off different debts using this loan, buy a car, fund a business expansion, marriage, child’s education, vacation, etc however not for speculative purposes. you’ll even use it to make a down payment on another property you intend to buy.

Who Offers Top Up Loans?

Top Up Loans are Good Alternatives Of Personal Loan

Private banks, PSU banks, Housing Finance firms and NBFCs that operate in India namely, HDFC, Citibank, ICICI Bank, ICICI HFC, SBI, Bajaj Finserv, etc. provide this product to resident Indians.

Though it’s a standard product yet companies do differentiate on sanction limit, rate of interest, tenure etc. every of them has distinct eligibility norms. It is, therefore, important to acquaint yourself with the details of the loan before you dive into it head 1st.

Top Up Home Loans & Eligibility Rules

  1. You must have an existing active home loan account that may be topped upon.
  2. Financial institutions wait till a certain period has elapsed on the home loan, like six to twelve months. this is often to establish a payment record, based on that they measure your creditworthiness.
  3. In case you choose to transfer the outstanding balance of your home loan to another bank then you’ll ask for a top-up with the new bank.
  4. If seeking a balance transfer then, financial institutions can analyse your payment history with the recent bank and based on that approve your loan.
  5. A favorable payment record is simply one among the many factors considered. Your credit score, existing outstanding on alternative loans & your income are few of the other parameters that help decide your eligibility.

Features of top Up Loans (How top up Loan works?)

Most banks permit only a top up of upto original sanction limit or a fixed top up amount, as an example HDFC allows a top-up of only upto Rs 35 lakhs or sanction limit, whichever is lower. Some banks ar willing to go upto a Rs 5 cr limit for top up loans, like Citibank & SBI, not extraordinary original sanction limit. Most banks can keep a cap of consolidated home loan outstanding and top-up loan at seventieth – 75th of value of property. allow us to look at an example:

Market Value of Property 1, 00, 00, 000
Outstanding Home Loan (a) 45, 00, 000
Top-Up Loan (Max Limit) (b) 25, 00, 000
Total Outstanding (a+b) 70, 00, 000
Cap at 70% of market value of property
  • The tenure will be anywhere between 15 years (Ex: HDFC) and 20 years (Ex: ICICI) or capable the tenure of the home loan. The tenure on a top-up loan will ne’er exceed the tenure of the base home loan.
  • Banks keep a lien that’s mortgage on the property against that the loan is taken. this means that your property is used as collateral for the top up loan.
  • Interest rate will be an adjustable, that is linked to the Retail Prime lending Rate for HFCs or interest rate for banks, or fixed rate. samples of a few top-up loan interest rates are 9.45% – 10.3% (HDFC), 7.5% – 10.6% (Citibank) and 9.85% – 13.25% (SBI)
  • An upfront fee is charged by the credit institution to method the loan. There are pre-payment and foreclosure fees too, that the borrower should be aware of.
  • The documentation is pretty straightforward for it’s offered to existing customers. though it’s a takeover account, you want to complete most formalities at the time of takeover for consumer credit account.
  • It is not an equivalent as Loan against Property as a result of here the loan is being topped-up on associate existing consumer credit. LAP is taken against a property that isn’t encumbered with anyone else.

Top-Up Loan vs Personal Loan

Top-Up Loan Personal Loan
  •  Secured Loan. Collateral – property
  • Unsecured Loan. No collateral.
  • Longer tenures as can be aligned with tenure of home loans, upto 20 years
  • Tenure is maximum 5 years
  • Cheaper as Interest Rate is 9.5% to 12%
  • Personal Loan Interest Rate 18% to 24%
  • Simpler Documentation as you are an existing customer
  • Tedious documentation compared to top-up loans.
  • Can seek tax rebate if funds are used for home improvements or further purchase of home
  • No tax deductions

Top Up loans are much better than Personal Loans.

The amount of top-up loan that you just will take might fall short on your financial requirement. At such a time taking a personal loan would make a lot of sense.

When you opt for a top-up loan with balance transfer, do the math on processing fee and foreclosure fee on previous loan account. it should not always turn out to be the foremost economical option.

Any pre-payments to home loan are adjusted towards the top-up account first. Some loans like Loan against LIC and Loan against FD might have a lower rate of interest.

In short, top up loans do look like a quick antidote for funding your requirements. However, ensure that you’ve got examined all aspects of the loan before you go ahead with it.