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Top up Loan Vs. Personal Loan – What should you choose and Why?

Are you faced with a financial emergency? Are you looking for the right funding option? Well, the two most attractive funding options that best fit your financial need are top-up loans and personal loans. Here is a comparison between the most sought after funding options doing the rounds of the market. To help you understand which one should you choose and why let us understand what each of them mean and what their features are.

What is a top-up loan?

A top up loan is a financial facility offered by different financial institutions that allow you to borrow a certain sum of money over and above your existing loans such as home loans and personal loans.

What are the features of a top-up loan?

Here is a list of top-up loan features.

Interest rates: The interest rates charged on a top-up loan is usually higher than that charged on a home loan. However, it is much lower than the interest rate charged for a personal loan. The current lowest interest rate for the home top-up loan is 8.9%, and the personal top-up loan is 11.25%.

Eligibility: Not everybody is eligible to avail a top-up loan. Several factors are considered before granting a top-up loan. Banks and other financial institutions check the repayment capability of a candidate. They check the candidate’s past track record concerning repayment. They also check the candidate’s credit score and repayment behaviors associated with the existing loan. If a candidate’s credit reports a favorable, then the concerned banks or other financial institutions approve the top up loan and grant it. Banks usually charge processing fees. However, some banks waive the processing fees.

Tenure: The top-up loans are either given for an outstanding period of an existing loan such as the home loan or 10 years. The tenure of a top-up loan varies from bank to bank.

Utilization: You can make use of a top-up loan for personal purposes such as funding your child’s education, taking a vacation, meeting medical emergencies, marriage expenses, and business expansion. You can also use a top-up loan to construct your house or make modifications to it. However, you cannot use a top-up loan for speculative purposes.

Processing time: The top-up loan processing time is 15 to 20 days.

Collaterals: To avail a top-up loan you don’t need to provide any collateral or any security to the banks or any other financial institutions. You will not need a guarantor either.

What is a personal loan?

A personal loan is an unsecured loan. This means that you are not required to pledge any collateral or security when you avail a personal loan. A personal loan is a consumer loan granted to help you meet personal or household expenses. You can utilize these loans to meet expenses such as marriage expenses, medical expenses, business expansion, home construction, remodification, and child’s educational expenses.

What are the features of a personal loan?

Collaterals: Since a personal loan is an unsecured loan you are not required to provide any collateral or any security to the banks or other financial institutions offering personal loans.

The flexibility of end use: One of the most important features of a personal loan is the flexibility of the end use. There are no restrictions on the end use of the personal loan amount in contrast to an auto loan or a home loan, where the loan amount can be used only to purchase a vehicle or a property respectively. You can use the personal loan amount any way you want.

Eligibility: Not everyone is eligible for a personal loan. The eligible age for a personal loan is 21 to 60 years. Salaried persons working in the public sector, MNCs and in the private companies and self-employed professionals such as CAs, CSs, Doctors, and Architects are eligible to avail a personal loan. Even though the eligibility criteria varies from bank to bank, the general criteria revolve around aspects like the capacity to repay the loan, annual income of the candidate, occupation, and place of residence.

Tenure: The tenure of a personal loan can range between 1 to 5 years. A personal loan for a longer or a shorter period may be allowed on a case by case basis. However, that is rare.

Disbursal of loan: A personal loan is usually disbursed within 7 working days of submitting a loan application to the bank or any other financial institution.

Interest rates: The interest rate of a personal loan is higher than that of a home top-up loan. The current interest rate of a personal loan varies from bank to bank and is subject to certain criteria. However, currently, the interest rate on a personal loan varies between 12.50% and 16.60%

Which of the two is better and why?

Several factors decide which one of the funding option is better for your current financial needs. Some of them are as follows.


If a financial emergency hits you and you need money immediately, then you must opt for a personal loan. The personal loan approval process is simple and speedy. More than often the loan amount will get credited to your linked bank account within 72 hours. However, in case of a top-up loan, it takes around 15 days to process the loan because it involves a set procedure and formalities that need to be adhered to before approval of the top up loan. Even though both these funding options are quick in processing in the loan amount, a personal loan is quicker to acquire.

Interest Rate

If you are looking for a more affordable funding option, then a top-up loan is ideal. When you consider the interest rates, then the top up loans charge lower interest rates than personal loans and are more feasible.

EMI Factor

The EMI component of a top-up loan is lower than that of a personal loan. Availing a top-up loan leaves a higher disposable income in your hands.

Other deciding factors for selecting either a personal loan or a top-up loan include restriction of options, the requirement of guarantor, documentation and formalities and eligibility norms.  You must make your pick based on a careful evaluation of your current financial needs and affordability. Before choosing between a top-up loan and a personal loan always make a “Why” analysis. This will help you make the right choice.

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