Three years of moving into her new house, Minisha finally bought her dream car. While being happy on her new purchase, Minisha was worried as she had no funds left to buy a parking space in her society. Surely parking the new car out in an unsecured location was not a good idea. With her Home Loan already well into its thirds year, Minisha was unsure as to how she could avail some loan for buying parking space. Her neighbour told Minisha about top-up loans which she could avail. Top up loans helps people like Minisha who are regularly paying their home loan installments but in need of some additional funds for some other purpose.
An Overview of Top-up Loans: A top up loan allows you to avail an additional loan over your current home loan. Banks, as well as non-banking financial institutions, offer top-up loans to existing home loan customers. The tenure for top up loans can go up to 15 to 20 years depending on the overall tenure of the home loan. These top up loans offer a wonderful opportunity for borrowers to bypass their financial roadblocks irrespective of purpose.
Working Mechanism of Top-up Loans: Top up loans work on the basic principle that since an existing home loan borrower has started reducing the outstanding amount of the loan by repaying the loan in the last three years; so some margin money in way of a top up loan can be extended to the borrower.
How to Apply for Top-up Loans:
Some banks offer Top up home loans to borrowers who completed 6 months loan repayment, while for some banks, the minimum paid installments are 12 months’. You can approach the bank for a Top-up loan with an application form, latest salary slips and updated bank statements. The loan will be disbursed within 48-60 hours.
Advantages of Top up Home Loans:
- No Restriction on Spending: There is no restriction of the way one spends the money raised through a top up loan. The money can be used for renovation work in the home, for personal needs, for medical expenses or any other private expenses.
- Quick Processing with Low Interest Rates: Since top-up loans are offered to existing home loan clients of the bank, the loan facilitation process is quick. The interest rates offered on top up loans are quite low compared to Personal Loans making them a very lucrative fundraising option.
- No Mortgage required: Top up loan allows users to raise funds without offering any additional security as mortgage.
- Tax Benefits: Under section 24 of the Income Tax Act, top-up Home Loans are liable for tax benefits on interest paid during the financial year. In case the top up loan is used exclusively for repair, renovation and construction activity of the home, tax benefits can be extended to the principal amount as well.
Disadvantages of Top up Home Loans: The biggest disadvantage of top up loans is that they are only available to existing Home Loan customers. Home loan customers with a poor repayment track record are also unlikely to get any benefits of the top up loan.Banks have the final decision to screen out home loan borrowers considering the number of EMI’s repaid before allowing top up Home oLan.
Comparing Top-up Loans with Personal Loans: Personal loans charge a higher interest rate compared to top up loans. The rate of interest charged for top up loans varies between 11.25% and 13.5% while that for personal loans is much higher usually ranging between 15%-25% per annum. The term of top up loans is usually between 10-15 years compared with 1-2 years for personal loans. Another advantage of Top up loans against personal loans is tax benefit.
|Bank||Top Up Loan Scheme||Interest Rate||Tenure|
|SBI||SBI Equitable Home Scheme||11.75%||5 years & up to 15 years|
|ICICI Bank||ICICI Top Up Scheme||12.5%||5 years & up to 10 years|
|HDFC Bank||Top up Home Plan||12.5%||5 years & up to 10 years|
|Standard Chartered Bank||Standard Chartered Top Up Loan||13%||5 years & up to 10 years|
|Bank of Baroda||Baroda Home Top Up Plan||11.75%||5 years & up to 15 years|
BankBazaar.com is a unique online space where you can compare top up loan rates and schemes of different banks and choose the best-suited plan for you. Apply now.