Personal Loan vs. Top-up Loan: What to Choose and Why

After taking one of the biggest financial decisions of your life,i.e., buying a new home with a Home Loan, your financial condition is bound to be a little precarious for at least some years. As a large portion of your monthly income goes towards repayment of your Home Loan Equated Monthly Instalments (EMIs), you do not have a lot of spare money with yourself to put into your savings account or invest somewhere. If in such a situation, any unexpected expense came up, you will be left wanting and might have to resort to borrowing from your friends or family but what if they also do not have enough money to lend to you. If you ever face such a scenario, there is no need to be disheartened, as you have two very viable options at your disposal,i.e.,apply for a Personal Loan or avail a Top-up Loan. 

Personal Loan vs. Top-up Loan

What is a Personal Loan?

A Personal Loan is an unsecured loan that is offered by most financial institutions in India for your personal expenses. You can use the amount as per your requirements and need not inform the lender regarding the usage of the money. There is no need to furnish collateral to secure the loan amount, but asthe PersonalLoan is an unsecured offering the rate of interest is on a slightly higher side. The maximum repayment tenure that can be availed is of 60 months,and the maximum amount available as aPersonalLoan can go up to Rs. 50 Lakhs.

With the rising popularity of Personal Loans, a large number of financial institutions have now started offering them through various online channels. One of the most popular modes to Apply for Personal Loan Online is through online finance marketplaces such as MyMoneyMantra. Here you can compare different loan products, access information about their interest rates, repayment terms, eligibility criteria, calculate your EMI and various other crucial data, which will help you make an informed decision.

What is a Top-up Loan?

The Top-up loan is a special category of secured loans which are offered on top of another loan,i.e., a Home Loan. Top-up loansare available only to existingHome Loan borrowers who have a good repayment track. In order to avail a Top-up loan, you must apply with your existing Home Loan provider, who will extend this facility to you upon his satisfaction with your Home Loan repayment track. Once your lender is satisfied with your creditworthiness, they will extend the mortgage on the Home Loan and would sanction the loan application.

The maximum amount available as Top-up loan is the difference between the total Home Loan availed and the total amount outstanding. The maximum repayment period that can be availed is the remaining period of your Home Loan. Amount availed as a Top-up loancan be used to meet any financial requirements of yours,and there is no need to inform the lender regarding the use of the money. The interest charged against a Top-up loan is usually up to 2%-3% more than the Home Loan Interest Rate. You can apply for a Top-up loan only after you have exhibited a good Home Loan repayment track record for at least two years. 

Personal Loan vs.Top-up Loan

If you are also facing this dilemma that which of the above two options you must use, then read further to understand the suitability of both the options according to different situations.

  Parameter Personal Loan Top-up Loan
1 Maximum Amount The maximum amount available as a Personal Loan can go up to Rs. 50 Lakhs depending on your credit score, repayment ability and requirement. The maximum amount available as a top-up loan is the difference between the sanctioned Home Loan amount less the total amount outstanding.
2 Availability Personal Loans are unsecured loans and are available to any salaried, employed or self-employed individual with a good credit score. Top-up loans are secured loans which are available only for existing Home Loan borrowers. They are offered by your existing Home Loan provider by extending the mortgage on your Home Loan.
3 Usability Personal Loans can be used for any personal or professional requirement of yours. There is no need to inform the lender regarding usage of the money. Top-up loans are available for any financial expenses that you may have, and you need not inform the lender regarding the usage of money.
4 Interest Rates Personal Loans are unsecured loans, as such the interest rate against them starts from 10.49% and can go up to 20%. Top-up loans are secured loans,and the rate of interest is up to 3% more than that of the Home Loan, as such the interest rate is lower than a Personal Loan.
5 Repayment Tenure The maximum repayment tenure for a Personal Loan can go up to 60 months. The maximum repayment for a Top-up loan is the remaining period of your Home Loan.
6 Monthly EMI Due to the high rate of interest, EMI for a PersonalLoan is going to be very high. As the rate of interest is lower and repayment tenure is also more, the monthly instalment is going to be lower.

 If you have a running home loan and have been repaying your EMIs on time, then availing a Top-up loan makes more sense and offers better benefits as compared to a Personal Loan. 

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 70+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.

Talk to our Loan Specialists toll-free at 1800 103 4004 to know more about our products and offers.

Deepak

After working as digital marketing consultant for 4 years Deepak decided to leave and start his own Business. To know more about Deepak, find him on Facebook, Google+, LinkedIn now.

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