What is a top-up loan and when should you go for it?

By: |
September 10, 2021 4:14 PM

This makes it an ideal option in case of an urgent requirement for money. The end use of top-up loans is generally related to but less restrictive than the original loan.

In May, the finance ministry extended the validity of the ECLGS by three months through September 30 or until guarantees for the earlier limit of Rs 3 lakh crore were issued. Now, it’s expected to be extended further.In May, the finance ministry extended the validity of the ECLGS by three months through September 30 or until guarantees for the earlier limit of Rs 3 lakh crore were issued. Now, it’s expected to be extended further. (Representative image)

Top-up loans are an ideal way to get emergency financing and are considered as one of the best loan options along with a personal loan, credit card, etc. Having said that, experts say, first and foremost, one must understand what top-up loans are all about. Top-up loans are provided by banks or housing finance companies and other financial institutions that allow individuals to borrow a certain amount of money over and above their home loan. Hence, they are financing options availed by borrowers who already have an existing loan, such as a home loan, with the lender.

In such a scenario, borrowers are generally only eligible for a top-up loan if they have been repaying EMIs each month, without default, for at least a year. Gaurav Jalan, CEO and Founder, mPokket says, “A borrower’s track record of repayments is one of the key determining factors on whether he/she could be eligible for a top-up loan. When such a loan does get approved, it is usually on the same terms and conditions as the original loan.”

In case of emergencies, when people need money urgently, usually most either opt for a personal loan or liquidate assets like gold and property to get money. However, experts say under certain circumstances taking a top-up loan on an existing home loan is a better option in such cases as they are easily available and at a good interest rate.

The biggest benefit of a top-up loan is that the borrower has to do minimal documentation. Just that the EMIs on their existing loan simply increases to the extent of the additional borrowing. Since a top-up loan doesn’t require the borrower to apply for a fresh loan as it is approved based on one’s existing loan with the lender, it streamlines the entire process and speeds up disbursal. Hence, a top-up loan could also be considered as an instant financing option.

Jalan says, “This makes it an ideal option in case of an urgent requirement for money. The end use of top-up loans is generally related to but less restrictive than the original loan.”

For instance, a home loan can only be used for that particular purpose, but with a top-up loan, just because the loan is linked with an existing home loan, it is not mandatory that the borrower will have to use the money for renovation or house repair. So a top-up loan could be taken for home repairs or furnishing, or for bigger expenses such as business expansion, child’s education, medical emergencies, and weddings – one can use the top-up loans for any purpose.

Therefore, Jalan adds, “top-up loans are an ideal option in case of unforeseen events or whenever one requires a personal loan or a loan against their property or even gold. In such scenarios, it’s a more convenient and hassle-free option.”

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