Taking any kind of loan brings lots of responsibility which needs strong financial commitment. This is because whatever you borrow is a debt that needs to be repaid, along with interest for the tenure chosen by you. So, before you take a loan you need to be extra careful and think twice before you apply. Most banks and non-banking finance companies offer different kinds of loans to finance the different needs of people, this includes home loans, car loans, personal loans, gold loans and so on. Among these loans, some fall under the category of secured while others in the unsecured category. Different loans serve different purposes and help people meet their requirements. However, when it comes to choosing between a top-up home loan and a personal loan, people often get confused. While it is best to take a home loan to purchase a new home, a top-up home loan helps you get some extra finance for your home extension/renovation or improvement. Well, these requirements can be fulfilled with a personal loan as well. So, another option you can explore is the personal loan. But, before you finalize one, here’s a quick comparison between top-up home loan vs personal loan.

What are Personal Loans?

Personal loans are kind of unsecured loans offered by all the top lending institutions. The loan is available online and can be availed from the comfort of one’s home or office. The interest rate charged for this loan is a bit high than others which forces you to think over it before you go for it. However, there is no end-use restriction on it and can be availed for any personal need. 

What are Home Loan top-ups?

A Top Up Loan is an additional loan that you get from your home loan lender over and above your existing home loan. The loan requires minimal documentation as you already have an existing account with the lender.

With Top Up home loans you can renovate, extend or do any other type of construction or renovation work for your home. However, there are end-use restrictions but the best part with it is the interest rate for a top-up personal loan is the same as that of home loans which makes it convenient for the customers. 

Let’s now compare both the loans in detail:

Interest rate

A top-up home loan is always on your already existing home loan. And the advantage of opting for it is – you get a top-up home loan at the same interest rate at which you have your ongoing home loan. This makes your borrowing way convenient and affordable for the consumers. Another important point to know here is – the lender considers your home as collateral and does not ask you to provide additional security also you get it at a cheaper rate. Whereas when you avail a personal loan its interest rate is always high and normally comes at 10-16%. However, a personal loan is completely secure and you need not have to provide any security/collateral for it.

The tenure Period

Home loans are generally offered for a tenure period of 20 to 30 years, and if you opt for a top-up loan above it, you can get an extension on the loan tenure for around 5 to 7 years. However, for a personal loan, you can get a maximum loan tenure of up to 5 years. So, in terms of repayment also top-up home loans offer you better flexibility.

Loan disbursal time

For a top-up personal loan, the loan disbursal generally takes 4-5 days. This is because it is a secured loan and your lender needs to update the paperwork which was done at the time you availed the home loan. However, if you are in an emergency and need urgent fund disbursement, then a personal loan is your best option. Most of the lenders today provide instant personal loans and the money is credited into your account within hours through online processing. With minimal documentation. If you need money urgently, you can opt for a personal loan. 

End-use limitations

When you avail of a personal loan you have no end-use restrictions on it. You are free to use the money borrowed anywhere as per your requirements. But if you avail of a top-up home loan there are certain end-use restrictions associated with it. This includes using funds only for home construction/renovation/extension or panting. 

However, among all the differences the most important point is- a top-up home loan can only be availed by those who already have an existing home loan. While anyone can avail of a fresh personal loan and can meet his/her financial needs. However, if you already have a home loan and going through cash crunches don’t forget to consider factors such as the EMI amount and the tax benefits before opting for any of these loans. 

Top-up home loan Vs Personal Loan
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Top-up home loan Vs Personal Loan
Read on-to this Finance Buddha blog, to know the difference between a Top-up Home Loan and a Personal Loan.
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Finance Buddha
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