Things to Consider When Taking a Top-up Personal Loan

A Top-up Personal Loan is an additional loan that can be availed on an existing personal loan. The lenders offer this facility to those borrowers who make regular personal loan repayments. You can either apply for a top-up loan with the same bank or make a balance transfer to another bank and avail of a top-up loan. The rate of interest offered on Top-up Personal Loans is generally the same or slightly higher or lower than the interest rate of the existing loan.

Here are some of the key benefits of the Top-up Personal Loan:

1. Quick and easy loan process:

Since the lender has already assessed the borrower's repayment capacity, availing of a top-up loan becomes quick and easy for the borrower. Moreover, if you take the top-up loan from the existing lender, the lender generally does not ask for extra documentation.

2. Attractive rates of interest:

The rate of interest offered on top-up personal loans is generally the same, or 0.25% to 1% higher or lower than the existing loan rate. Besides, the lender can waive-off processing fees or offer to negotiate the interest rate depending on your banking relationship.

3. Longer loan tenure:

The top-up personal loan tenure will be the same as your existing loan tenure. So, if you opt for a top-up loan earlier, you can take advantage of the longer top-up loan tenure.

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Things to consider when taking a personal loan top-up:

While there are many benefits of a Top-up Personal Loan, to make an informed decision, it is essential to know certain things before availing of a top-up loan:

1. Interest Rate:

The interest rates offered on top-up personal loans are similar to regular personal loans. If you find a lower rate than what is offered in the market, it makes sense to opt for the offer. Otherwise, you should negotiate with the lender on the interest rate. If the lender is not ready to negotiate, you can consider opting for a fresh personal loan to minimise your monthly EMI obligations. This will help you minimise your EMI and interest obligations.

2. Hidden Charges:

Depending on the lender, when opting for a Top-up Personal Loan, you will have to pay a processing fee, documentation fee, etc., to your lender. Therefore, it is necessary to get the information about all these hidden charges in advance from the lender and calculate if the loan is affordable to you. It does not make sense to continue with the existing lender if they are charging higher fees.

3. Loan Tenure:

Since a Top-up Personal Loan is simply an additional amount on an existing personal loan, the loan tenure of a top-up loan remains the same as the existing loan tenure. For example, if your existing personal loan has a tenure of 5 years and you opt for a top-up loan after 2 years of availing of the original loan, you will have to pay the remaining amount of your personal loan plus the top-up loan amount within the personal loan tenure, i.e., in three years. Hence, you should keep in your mind that the top-up loan does not let you extend the loan tenure unless you opt for personal loan refinancing and change the loan terms.

4. Your Income:

Since a top-up personal loan does not let you change the loan terms, your EMI burden increases. In order to timely repay the increased EMIs, you should make sure your income has increased than what it was when you availed of the existing personal loan. If your income has not changed, it might create a financial burden on you.

5. Other Loan Options:

Personal loans are unsecured, which makes them costlier than secured loans. Therefore, it is advisable to opt for any kind of personal loan like a regular personal loan, top-up personal loan, personal loan refinance, etc., only in case of an emergency when you do not have any collateral and need funds urgently. It is not a good idea to opt for such costly loans for luxuries or buy unaffordable items like electronic gadgets, vehicles, furniture, etc.

To Conclude:

With a strong repayment record and good credit score, you can negotiate with the lender on a personal loan top-up interest rate, processing fee, and other charges. However, before opting for the same, it is crucial to analyse your needs and avail of the loan only during emergencies. Furthermore, compare the top-up loan terms with other loan options and carefully read the loan agreement to make an informed decision.

Warm Regards,
Ketki Jadhav
Content Writer