The need for funds can “gatecrash” at any odd time in your life, like an unwelcomed guest. The first thing that will make its way in your thoughts is perhaps a personal loan. Should you rush to the bank for a personal loan as yet? Is it the only available option? It may be the most exploited option but it is certainly not the most viable. Find out more below.
You may be looking for finance to fund a business proposal, planning a wedding, pay for education or simply go on a vacation. Whatever be your need, the underlying question remains the same, “how to pay for it?” While, commonly, taking a loan comes to mind but which loan should it be? Should it be a personal loan, gold loan or a business loan? How about a top-up loan? Easy, quick and cheap.
What is a top-up loan?
Let us explain with the example of Harish Bhatia. He took a HDFC home loan of 50 lakhs in 2010 for 20 years for an underconstruction property at 10% ROI. After taking possession of the house in early 2014, Mr. & Mrs. Bhatia were keen on doing up their house with all the modernities. But they were short on funds. By the end of 2013 they had paid back about 7 lakhs of their home loan. They contacted HDFC and asked them for a top-up loan. HDFC allowed them to top-up their existing home loan for upto 7 lakhs that had been repaid over the past three years. They only needed 5 lakhs.
The ROI on top-up loan was much lower than that on a personal loan, no separate collateral was asked for plus they got tax rebate on their top-up loan as well, for the funds were used for home renovation. Not to mention, they were able to do it up according to their taste. Nothing sounds better than that.
In simple words, a top-up loan is that additional loan that you can take on an existing loan after you have paid it down for at least a year. Basically, after paying back a loan, if you need more funds then instead of applying for a new loan altogether, you just restore back to your original loan limit and get immediate access to funds. The turnaround time between applying and approval is rather quick and easy because you are an existing customer and the lender has all your KYCs already.
But yes, your eligibility depends upon your capacity to repay and your CIBIL score, which the lender will surely examine. Once that’s done, your accounts are credited with the required funds.
Comparing Top-Up Loans to other Debt Options
Personal loans, though common but are one of the priciest loans in the market. Your credit score may not be reviewed for gold loans but you must part with your precious gold assets for it. Whereas, you must have a specific amount of turnover to be eligible for a business loan and depending upon your requirement, you may have to furnish additional securities.
On the other hand, a top-up loan does not necessarily have to be used for home related expenses. You have the freedom to use it for anything under the sun. The lender holds the first mortgage on the property.
The table given below will give you a quick insight in the differences in ROI and other charges:
The table clearly shows by taking a top-up loan you save more money than you would by choosing any other option.
The Flip Side
What if you do not have a home loan? You certainly won’t be able to take advantage of a top-up loan. All prepayments are adjusted towards the top-up portion first and then the balance goes towards your outstanding home loan.
Looking for a big ticket loan? You might need a large amount to raise capital for your business and the top-up loan amount might fall short on your requirement.
In case of an emergency, such as a medical emergency, it may not be as easy as to take a top-up loan as an OTC gold loan would be.
You knew about “how to top-up your prepaid connection”. Now you know about “top-up loans”. Either ways, it means “to add more balance to existing outstanding amount”. Top-up loans can be quite handy as they don’t ask for additional mortgage, are cheap, impose no precondition on how the funds should be used and ofcourse, require less documentation formalities too.
Mainstream banks that deal in home loans also provide the facility of top-up loans. If you are looking to transfer your home loan to another bank, you can apply for a top-up loan with the new lender too. In other words, it is a personal loan at a lower rate. Just the icing on cake you want.
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