Borrowing money becomes essential on several occasions in life be it a medical emergency, buying a home, or a brand new car. Well, to take off our needs and requirements several loans have been designed specifically. One such loan which we will be discussing in this blog is the personal loan. The loan has been popular for a decade because of its offerings and features. Some of its main advantages include collateral free nature and no end-use restrictions. 

At the time of extreme monetary crises; many of us get stressed about getting financial assistance. Among the different ways to get financial aid, personal loans always lie on top. However, for one who already has an ongoing personal loan, availing a top-up personal loan remains the most affordable and convenient option. Banks easily approve this loan as they already have the customer’s documents and credit history.  

Top Up Personal Loans!

A top-up personal loan is a facility provided to the existing personal loan holders to extend their borrowing. This is indeed the best option for emergencies as it doesn’t involve any documentation and takes very little time for the loan amount to get disbursed. A top-up personal loan can be availed for any personal need which works in favour of the borrowers.

Eligibility required to avail top-up loan facility includes-

  • A clear track record for the payment of ongoing personal loans.
  • Job stability
  • Good CIBIL
  • The borrower should have paid the minimum number of EMI as per the lender eligibility criteria. With most of the lenders, it ranges for the payment of a minimum of 12 EMIs.

Advantages offered by top-up personal loans

Quick Disbursal– A top up on a personal loan gets fast approval and disbursal as the applicant has gone through the same loan process for his first personal loan. Moreover, the relationship between the lender and the borrower is not a new one. So it takes less time for the borrower to do the verification. This makes top-up personal loans best for emergencies where you don’t have time to go through the paperwork and hassle of new loan processing.

Collateral Free – Like any other personal loan, a top-up personal loan is also unsecured and hence, doesn’t require any collateral or guarantor to be backed up against the borrowing.

Multipurpose in Nature– Being an extension to the ongoing personal loan, a top-up personal loan offers the same facility. And one such facility is no limitation on the end-use of the loan amount which makes it a multipurpose loan. It can be used for medical emergencies, home renovation, travel, higher education, purchasing gadgets or to fund the short term requirements of your business. 

Cheaper than Personal Loan– One of the advantages of top-up personal loans is the lower interest rate. Generally, the interest rate charged for a top-up personal loan is a bit lower than what it is charged for a personal loan. Getting it even for 1% cheaper rates makes a person save a lot during the whole tenure.

The Pitfalls

Applicable Only to the Existing Customer– A top-up loan personal loan is applicable only to the persons who are already servicing a personal loan with the same lender. So if a person wants to change the lender, then this facility will not apply to him.  

No Tax Benefits– A top-up personal loan doesn’t bring any tax benefits. One can save tax on top-up loans only if the loan amount is used in the home renovation or educational purpose.

Personal Loan Vs Top Up Personal Loan

  • A personal loan and a top-up loan both can be used to get funds. If a person is already serving a personal loan than a top up loan is the better option to them. This is because it takes very less time to disburse a top personal loan whereas availing a fresh/new personal loan can take more time. 
  • If the person has a good repayment history and he has a good credit score then it is not difficult for him to get a top-loan loan. Whereas getting a personal loan can be a bit tough as it has some strict eligibility criteria. 
  • The maximum tenure of a personal loan is 5 years, whereas a top-up loan can go up to the end of the personal loan, but can only be availed if the borrower has already served a minimum of 12 EMIS.*
  • When a person goes for a fresh loan, he has to start everything from the start. Researching the best lender, applying for the loan, submitting documentation and so on. Whereas availing a top-up loan only involves a much smaller process, which is signing the loan agreement. 
  • When considering the cost of the borrowing, a personal loan is costlier than a top-up loan.
  • A person is free to apply with any of the lenders for a personal loan whereas when availing a top-up loan a borrower is restricted to apply with the lender from whom he/she is having their personal loan. 

Top up personal loans are a very effective tool to fight monetary crises at the time of emergency. However, to avail of this facility, it’s important to have an ongoing personal loan. It is highly advisable to analyse your requirements along with the pros and cons of a top-up loan before taking any decision.