Top up on Home Loan vs Personal Loan – A Comparison to Determine the Better Choice for Loans
Whenever you are in a financial crisis or need additional financial support for a short-term, a loan can help you fulfil all your obligations. If you already have a home loan, a top-up loan can be used to meet such requirements. However, personal loan is also one of the options that you could check out before taking a final call.
Before you make your choice, learn about top-up home loans, personal loans, and the difference between them, which would in turnhelp you take a wiser decision.
What is a top-up home loan?
When you already have a home loan, you can ask for an additional loan over and above that loan from your lender. This loan is called a top-up loan; a ‘top-up’ or an addition to your ongoing home loan. However, to avail a top-up loan, it is essential to have a good financial record. Lenders provide top-up loans only to those borrowers who have satisfactory payment records. So, if you have paid all your EMIs on time, you can get a top-up loan. While the home loan is aimed at a specific purpose that is purchasing the home, the top-up home loan is not tied to any end use. You can use the funds from this loan for any purpose, like meeting a financial emergency or repaying other high-interest loans.
What is a personal loan?
A personal loan is an unsecured loan that you can avail from the lender to fulfil your various financial needs. There is no pre-defined end-use for a personal loan, which is why the lender would never ask you the reason for taking a personal loan. Also, you need not submit any collateral for a personal loan.
What should you opt for? Top-up home loan vs personal loan; a comparison.
| Basis | Top up home loan | Personal loan |
| Loan amount | The amount of the top-up home loan would depend on the loan to value ratio of your collateral property. If your existing home loan is already equal to 80-85% of your property value, you might not be able to take a high-value top-up home loan | If you fulfill all the eligibility criteria, you can easily take a high value personal loan. |
| Interest rate | The interest rate of top-up home loan is low as compared to other loans. | The unsecured nature of a personal loan makes it risky for the lender. This is why the interest rate of a personal loan is high. |
| Documentation | Taking a top-up home loan is easier in terms of documentation. It is because the lender already has your documents and they would not ask you to submit all your documents again. | A personal loan is unsecured, due to which the lenders rely on your documents for all the information. |
| Loan tenure | You can get a longer tenure on your top-up home loan. The lender often allows the remaining tenure of your current home loan as the tenure for the top-up home loan as well. | A personal loan is provided just for a maximum tenure of up to five to seven years |
From the above comparison, it is clear that it is beneficial to opt for a top up home loan than a personal loan. However, the suitability would depend on individual conditions.
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