The need for extra funds can arise at any time and for any reason, be it for clearing your debts, renovating your home, or paying for your kids’ education. Top-up loans are a boon to people who are in urgent need of funds. A top-up loan basically allows you to avail an additional loan amount on top of your existing loan, be it a Home Loan, a Car Loan or a Personal Loan. And you can utilise this loan for any purpose too.
For instance, let’s take the example of Kavya Sharma. She took a Home Loan from her friendly neighbourhood bank to buy a cosy little apartment in Bangalore. Two years later, Kavya and her husband decided to have a baby. But before that, they wanted to renovate their apartment. They figured that they needed to take a loan to cover the cost of renovation.
But getting another loan was a difficult financial decision for them. They were already servicing two loans – Kavya’s Home Loan, her husband’s Car Loan. And they had their individual Credit Cards too.
Additional Reading: Top Up Your Home Loan!
How can they go about this? Well, it is pretty simple. Kavya can apply for a top-up loan on her existing Home Loan.
Simple Top-Up Loan Breakup For Kavya’s Case
Let us assume Kavya had taken a loan of Rs. 30 lakhs at a 12% interest rate for a period of 20 years. And as specified earlier, she’s currently in the third year since she took the loan.
Now, coming to the property price, let us make another assumption that from the time she purchased the property, its value has risen by Rs. 20 lakhs. So, the current market value of the property is at Rs. 50 lakhs.
70% of Rs. 50 lakhs =Rs. 35 lakhs (70% of the value is taken as the margin beyond which the loan will not exceed)
Let us now deduct Kavya’s outstanding loan amount:
Since she is three years into the loan, she would have repaid a principal amount of Rs. 1.31 lakhs. So, the remaining principal amount to be repaid is Rs. 28.7 lakhs.
Now let’s figure out the top-up loan amount she’ll be eligible for. It’s a simple calculation.
Rs. 35 lakhs (70% of market value) – Rs. 28.7 lakhs (principal amount yet to be repaid) =Rs. 6.3 lakhs
Hence, the maximum top-up loan Kavya will be eligible for, based on the above assumptions is Rs. 6.3 lakhs.
Additional Reading: All You Need To Know About Top-Up Loans
Why A Top-Up Makes Sense
Let us tell you why we are saying that getting a top-up loan on your existing loan is a much better option than getting another loan, like a Personal Loan:
Additional Reading: Personal Loan Or Top-up Loan- Which To Choose To Repay A Home Loan?
For starters, you don’t have to worry about documentation and approvals. Since you already have a relationship with the bank and you’ve been paying your existing loan EMIs on time, banks will approve your top-up application in a jiffy. Plus, they’ll offer you an attractive rate of interest too (much lesser than that of a Personal Loan!).
Last but not the least, your bank will offer you a longer repayment tenure and lower EMIs too. Top-up loans come with a repayment tenure of 10 to 15 years. However, this completely depends on the bank.
However, we do not guarantee that you’ll get a top-up loan just because you have an existing loan with the bank. Your bank will consider your repayment ability and your other outstanding loans, if any, too. In short, the final decision will be taken by your bank.
Utilizing A Top-Up Loan
It is almost like a Personal Loan, except that it comes with a better interest rate. Though not as good as Home Loan rates. You can utilise this loan for any purpose. A top loan on your existing home loan is an ideal choice to pay for renovating your house, funding your own parking space, or paying for your child’s higher education, etc.
Additional Reading: Benefits of a top up home loan!
Popular Picks For Top-Up Loans
Of course, you can avail a top-up loan from the bank or financial institution that you have an existing loan with. However, you can always balance transfer your existing loan to another bank that provides better features and then apply for a top-up loan. Here are a few popular choices for top-up loans:
HDFC Top-up Loan – Salaried individuals can avail up to Rs. 50 lakhs top-up loan, whether they are existing customers or new customers who have opted for a balance transfer. Benefits include attractive interest rates, simple repayment structure, and hassle-free documentation. The maximum tenure offered is 15 years.
ICICI Top-up Loan – No collateral required, simple and hassle-free documentation, instant approval and quick disbursal, and low-interest rates (starting from 10.99% for Personal Loan top-up). On a Home Loan top-up, you get a maximum tenure of 20 years and a loan amount equal to 100% of your sanctioned Home Loan.
SBI Top-up Loan – Salient features of a top-up loan on your Home Loan from SBI include low-interest rates with daily reducing balance, long repayment tenure of 30 years, no hidden charges, low processing charges, and no prepayment penalty.
Bonus Read: Understand Home Loan Balance Transfer!
So, what do you think about top-up loans? Do you think they make more sense than taking a Personal Loan? Let us know your thoughts in the comments section below.