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Should You Go For A Top-Up Loan Or A Personal Loan?

Debts are a long term commitment. We opt to take a loan for various needs; home loans, vehicle loans, business loans, education loans, personal loans and many more. Any kind of loan requires disciplined repayment and strict budgeting of your finances so that you don’t incur high repayment costs.

While there are different loan products available in the market, one has to consider various factors before choosing a loan product;

  • The loan amount offered
  • Interest rates
  • Repayment tenures
  • Processing fees and other charges
  • Collateral or Guarantee requirements
  • Prepayment and part-payment options

One of the most common loans these days is the ‘Personal Loan’. Personal loans are disbursed within hours these days. Your salary account, existing FDs and your relationship with the bank serve as enough collateral for the banks to offer you huge amounts of personal loans.

However, is it really prudent to go for personal loans considering its high-interest rates and repayment costs? 

What other options does a borrower have?

Enter – Top-up Loans

Top-up loans can be availed on your existing loans. It can be availed on top of your existing home loan, personal loan, car loan or business loan. Top-up loans are also disbursed as quickly as personal loans since the bank already has enough documentation for the loan process.

Which is the better choice? Personal Loans Vs Top-Up Loans

But when it comes to choosing between the two, how does one decide which loan to go for? Here are some pros and cons of the loans for you to gauge them both in your decision making.

Feature Personal Loans Top-up Loans
Application Process Personal loans are based on your income, job and other requirements and hence has strict eligibility criteria. Top-up loans are processed with less documentation since the bank already has much of your data with them.
Loan Amounts You can get up to Rs. 50 lakhs as personal loans. The loan amount is based on your existing loan amount and the collateral or property linked to it.
Interest rates Will be on the higher side as personal loans are unsecured loans. The interest rate is more or less similar to your existing loan rate and hence less compared to personal loans.
Repayment tenure Usually comes with a repayment tenure of 1-7 years. Linked to the repayment tenure of your existing loan and hence you may get longer repayment tenures compared to personal loans.
Usage of the loan amount The loan amount can be used for any of your needs, there is no restriction. Similar to personal loans, top-up loans too don’t have any restriction on the end-use of the loan amount.
Security or Guarantee Personal Loans are unsecured loans. The loan is secured against the property or asset you have originally purchased.
Loan Disbursal Time Personal loans are disbursed in a matter of minutes. Requires a bit of paperwork which may delay the time taken to disburse the loan amount.
Eligibility Personal loans require you to have a steady source of income. Individuals with an existing loan can apply for a top-up loan.
When to apply? You can apply for a personal loan anytime. Top-up loans are available only after you have paid a minimum of 12 EMIs.

Can I negotiate the terms of my Personal Loan or Top-up Loan?

Definitely! Be it a personal loan or top-up loan, you can surely negotiate with the banker for better interest rates and other benefits.

  • A personal loan is determined based on your income and so you can show all your income and assets to get a better loan amount and lower interest rate
  • Top-up loans are based on your current loan history and hence, you can negotiate based on your repayment record and your current relationship with the bank for better terms on your loan

Should I choose a Personal Loan or a Top-Up Loan? 

Each loan type has its own pros and cons. It’s not possible to say that a particular loan type suits every consumer. The needs of each customer are different based on their income, job type, age and the end-use of the loan amount. While personal loans are quicker to avail, they come with high-interest rates. But top-up loans, though come with lower interest rates, won’t come in handy in times of emergencies. So, make sure to weigh all the pros and cons of these two types of loans and make an informed decision.