A top-up loan is a facility provided by banks, lending institutes and housing finance companies that help you to borrow some amount of money over and above your existing loan. Top up loan could be one of the best and the smartest financial moves when you are in urgent need of funds. It is more efficient both in terms of tenure as well as interest cost. Many borrowers are not aware of top-up loan facility and end up taking personal loans which come with a high-interest rate, there is a difference of 5%-6% in the rates of interest.
In case of top-up loans, most of the people get confused about the repayment option. If you take the top up on your existing loan, you have to pay a single combined EMI for the existing loan as well as for an additional top-up loan. Applying for and maintaining multiple loans can be quite a difficult task. A Top-Up Loan on your existing loan will speed up the process and save you lots of time and energy.
Features of Top-Up Loan:
The top-up loan is not available to everyone. You can get a top-up loan if you have an existing and running loan from a bank and the bank is willing to give you an additional loan on your existing loan as you have already repaid a certain part of the loan and made all the payments regularly. Maintain a timely and satisfactory repayment record for at least 1 year. You can apply for this loan from your existing lender or choose to apply for a balance transfer loan with the top-up loan which means you switch your loan to a new bank and avail a top-up loan on your existing loan. If you want to take a top up home loan, the most important thing to consider is that the bank provides this facility only if you are able to mortgage a property in the name of the bank.
The interest rates charged on top-up loan are a little bit higher than what you pay for your home loans. This is very cheap compared to the interest rates on the personal loan, credit cards or car loans. The interest rates for top-up loans are usually between 1.5% and 2% more than the interest rates of home loans, that means the last interest rates for top-up loans could range between 8% and 14% in most banks as per the market conditions, making them the cheaper option.
Processing fees and charges:
Most lenders charge processing fees before the approval of the loan. The processing fees are generally the same as charged on the initial home loan. In some cases, banks don’t charge the processing fee. There are no foreclosure or prepayment charges if you want to prepay your EMIs or foreclose your loan before the tenure gets over. This way you can clear off your debts quickly and easily if you have the financial ability to do so.
The top-up loans are either given for the outstanding period of the existing home loan or for a period of 10 or 20 years. The tenure varies from bank to bank. It also takes into account the customer’s profile, age, income, the value of a property, etc.
The maximum amount you can get as top-up home loans varies from bank to bank. However, the total of the new top-up loan amount and the balance home loan amount should not exceed 70-80% of the value of the property. Usually, top up loan sanction amounts are less than the value of the initial home loan. The upper limit is determined by the bank and it generally ranges between 15 and 40 lakhs.
Benefits of top-up loan:
One of the best thing about the top-up loan is that it can be used for any purpose. It need not be home improvement-related. You can use it for a vacation, wedding, buy a jewelry, education expenses, renovate your house, buy a vehicle, or invest it in the stock market, the choice is yours. However, you cannot utilize the top-up loan amount for speculative purposes.
Low repayment cost:
The interest rate is more or less identical to what you are already paying on your existing home loan. For example, a bank provides the home loan at 8.3%. If top-up is availed of over the same, the interest rate levied is 8.4%.
No new documentation:
Since you have already submitted your documents to the bank, there is no need for providing them again. Only some update might be needed for the top- up. For instance, you may need to submit bank statements to show the repayments of existing loan.
Getting a Top Up loan is hassle-free and requires very little paperwork. The bank may not perform the verification process again to disburse the loan and may use the previous documentation. Top-up loans are easily approved and disbursed because you are already a loan customer of the bank and have been paying your EMIs regularly over the last 1 or more years.
Top-up home loans are available for a longer tenure than a personal loan, car loan or gold loan, say for 20-30 years. The duration of the loan may differ from bank to bank. Some banks provide it for 20 years or 30 years without considering the outstanding period of the existing loan. Some might provide by considering it. And some banks might provide only till the age of 70 or up to the age when the retirement starts.
Top-up loans can give you tax benefits. However, you should use the loan amount only for home repairs, extensions, renovation, or for educational purpose. Tax benefits are not applicable to customers who use the funds for any other reasons except the mentioned.
No Security Needed:
Most banks give top-up loans to customers without requesting any asset as collateral because of the fact that it has been sanctioned after you already took out a loan with the bank. The lenders already have customers’ documents.
Many lenders offer Top-Up Loan, but before you go for a top-up loan, check the processing fees, the foreclosure charges, the rate of interest, tenure, etc. Analyze your options and choose the one that adds up well for you.