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Top-Up Home Loan Vs. Personal Loan–Which One Is Better For Emergency And Why?

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Mr. Rohan took a home loan to purchase a new house property and started paying EMI’s of the same. After five years his daughter’s marriage got fixed and he could not manage to arrange funds for the marriage. So he contacted his bank to apply for a new loan for his daughter’s wedding. The loan manager of his bank introduced him with the top-up loan and asked him to go for top-up loan on his existing home loan rather than going for a fresh loan.

Top-Up loan as name suggest is a loan amount over and above existing loan. Most of the Indian banks offer top-up loan to existing home loan buyers. The tenure of top-up loan on existing home loan is 10 years. Which means borrower have to pay back the top-up loan amount with 10 years from the date of disbursal. Bank offers top-up loans to only reliable customers who have good credit history. To avoid any defaults, bank disburse top-up loans after few years of home loan disbursal to have clear repayment track record of the existing customer.

Key Features Of Top-Up Home Loan

  • Bank offers top-up loan only to existing home loan borrowers of the bank.
  • The tenure of top-up loans is 10 years which can go upto 20 years depending on your existing home loan term.
  • The top-up loan amount depends upon the outstanding balance of the existing home loan. As banks usually offer loan upto 60% of the property value. The maximum amount a bank offers as top-up loan is Rs 10 lakh.
  • Bank approves top-up home loan depending upon the market value of the property and outstanding home loan amount. So borrower can get higher amount of top-up loan applied after 3 or 4 years as compare to the top-up loan applied after 1st year.
  • Bank approves top-up loan request after taking into account factors like value of the house property, outstanding home loan amount, repayment history and repayment capacity of the borrower.
  • Borrower can take top-up loan for buying Furniture for home, Children education, Daughter’s marriage, Family holiday etc..
  • Borrower can also avail tax benefit if he uses the top-up loan money to renovate or acquire space for existing home like parking space. The tax rebate from top-up loan is inclusive of the tax rebate on current home loan.
  • Top-up loans are cheaper than personal loan.
top-up loan
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Top-up Home Loan Vs. Personal Loan

  • It is easier for an existing customer to get top-up loan as compare to fresh personal loans.
  • The tenure of top-up loans are between 10 to 20 years whereas the term of personal loan ranges from 1 to 2 years.
  • Interest rates on top-up loans are quite reasonable i.e 11.25% to 13% p.a as compared to personal loan 15% to 25% pa.
  • Borrower get more time to pay back the loan amount in case of top-up loan as compare to personal loan.
  • EMI’s in case of top-up loans are small as compare to personal loan due to loan tenure.
Bank Name Top-up loan Interest Rate Fresh Loan Interest Rate
State Bank Of India (SBI) 11.25% 10.00% to 10.15%
ICICI Bank 12.25% 10.50% to 11.75%
HDFC Bank 12.25% 10.50% to 11.00%
Standard Chartered Bank 12.75% 09.50% to 12.00%

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