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What are Top-Up Loans?

4 minsMarch 05, 2017

Achieving your dreams often requires a bit of extra support. Imagine having someone who not only gets your goals but is consistently ready to assist you in reaching them. This is where a top-up loan comes into play. Offered by banks and housing finance companies, these loans serve as an additional financial resource, helping you effortlessly bring your dreams to fruition with that much-needed extra funding.

Let us take an example to understand what actually a top-up loan is?

Suppose your bank has approved a home loan of Rs.60 lakhs for a period of 10 years. After 5 years, the outstanding principal balance on your loan is Rs. 36 lakhs. Now, if you are considering a major renovation in the house, you can consider a top-up loan (a loan that tops-up your home loan), to finance the renovation instead of opting for a costly personal loan.

A top-up loan is a loan given by the bank over and above your home loan. Just like you top-up your mobile balance if you are running low on balance, similarly banks give top-up loans over your current balance. This might have increased your curiosity to know more about the product.

Below is a quick guide on everything you want to know about a top-up loan:

Top-Up Loan Meaning:

Top-up loan is a facility provided by banks, housing finance companies and other financial institutions that allows you to borrow a certain amount of money over and above your home loan.

Features of Top-Up Loan:

Eligibility: The top-up loan is not available to everyone who has availed a home loan from a bank. Several factors are taken into consideration before granting the top-up loan. Banks check the repayment ability and past track records in relation to the repayment of the previous home loan. If the credit report is favourable, the banks grant the top-up loan by charging some processing fee. In some cases, banks waive the processing fee.

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

Interest Rates: The interest rates charged on top-up loan are slightly higher than what you pay for your home loans. This is very cheap compared to the interest rates on the personal loan.

Utilisation: You can utilise a top-up loan for purposes of modification or construction of your house or to meet your personal expenses like funding for children’s education, etc. However, you cannot utilise the top-up loan amount for speculative purposes.