Loans are a requirement for everyone, and being confused between getting a top-up loan or a personal loan is fairly common. This blog is sketched to help you learn more about top-up loans vs personal loans. Keep reading for more information.
“A big part of financial freedom is having your heart and mind free from worry about the what ifs of life”. In our daily lives, many individuals experience life-changing situations. In such situations, there may come a time when financial aid is a need. These days getting the required financial support by availing loans is relatively easy and
comfortable. From time to time, people from all walks of life opt for loans to raise much-needed additional funds and meet unavoidable financial requirements. The growing demand for loans propelled banks and financial organizations to introduce various loan packages in India’s financial market.
Credit borrowers have multiple choices when looking for loans following a sudden financial emergency. In a sea of offers, top-up and personal loans would win the people’s choice award as they are the most popular. Contrary to popular belief, these two loans differ from one another. Each has pros and cons, which often need clarification about which loan would suit their needs. Understanding the difference between a top-up and a personal loan may help an individual make informed decisions.
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Personal Loan Vs Top-Up Loan
A personal loan is an unsecured loan that a person can borrow from any bank or financial institution. This loan can be used as additional funds for various financial requirements.
You can get a personal loan to fund a dream wedding, aid with medical bills, or start a business. A top-up loan adds a certain amount of money over and above an existing loan, which can be a personal or home loan, much like any prepaid service. Typically, the house is taken as collateral, making it a secured loan.
Furthermore, personal loans can be availed online with great ease and comfort for almost all purposes. All leading public and private sector banks in India offer these loans to individuals who prove their eligibility and are ready to agree with the terms and conditions set by the chosen bank.
Due to multiple benefits, many people apply for instant personal loans every year and get the requested money after completing all formalities successfully.
However, a top-up loan is a loan given to individuals who have already taken out a loan and need additional cash to meet unavoidable financial emergencies. This loan is given by the banks and financial organizations that gave the previous loan. The significant advantage of such a loan is that you can get the requested money quickly. The bank can easily verify your details using the available data and announce their judgment. In addition, an amicable relationship with the existing banker, a good credit score, and excellent repayment ability makes you eligible for top-up loans. Apart from the above-mentioned differences, there are many important features that differentiate a top-up loan from a personal loan.
Significant Differences Between a Personal Loan And a Top-up Loan
There are seven features that differentiate a top-up loan from a personal loan. These are:
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Loan Amount
| Personal Loan | Top-up Loan |
| An individual can get a personal loan of about 50,000 to 50 lakhs depending on their eligibility and requirement. | A financial institution will give a borrower at least 70 percent or 80 percent of an additional top-up loan on the existing amount. |
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Eligibility
| Personal Loan | Top-up Loan |
| Personal loan eligibility will depend on the applicant’s age, nationality, and employment, with a minimum salary of 20,000. Their credit score should also be around 750 or above. Most financial institutions will require documents related to your identity, residence, employment, salary credits, existing loans, and EMIs, pending bills, and credit score reports. The documents required for a personal loan will differ from one bank or financial institution to another. Therefore, checking with the banks before applying for a loan is recommended. | A financial institution will get the documents required for a top-up loan from the submitted documents of the previous loan. So, top-up loan eligibility will depend on whether an individual has an outstanding personal or home loan. The loan can only be availed after a stipulated amount of time has passed and a portion of the existing loan has been repaid. |
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Interest Rates
| Personal Loan | Top-up Loan |
| For personal loans, the interest rate is usually higher as it is an unsecured loan. | Top-up loan interest rates are usually low. This is because a top-up loan is an additional loan taken on top of an existing loan, making it a secured loan. On top of that, the house is taken as collateral. |
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Tax Benefits
| Personal Loan | Top-up loan |
| Usually, no tax benefits can be claimed from a personal loan. | If the funds of a Top-up loan are used for pre-defined purposes such as a home renovation or expansion, tax benefits can be claimed up to a certain amount. |
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Tenure
| Personal Loan | Top-up Loan |
| The tenure for a personal loan is much more rigid than for a top-up loan. The maximum tenure for this kind of loan is five years. | A top-up loan has a flexible tenure. The maximum tenure for a top-up loan can be up to 30 years or the remaining tenure of the existing loan. |
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Processing Time and Fees
| Personal Loan | Top-up Loan |
| When applying for a new loan, the processing time is usually longer. This is because the documents provided by the applicant will have to go through a verification process. The applicant’s profile and documents will be checked and scrutinized for approval. This usually takes 10-15 days. For these reasons, the processing fee is also higher with personal loans. | The processing time for a top-up loan is shorter than for a personal loan. This is because the necessary documents have already been verified and approved for the previous loan. A top-up loan can be availed through online applications as well. It usually takes a few days for a top-up loan to be processed. The processing fee is also significantly lower. |
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Lending Source
| Personal Loan | Top-up Loan |
| A personal loan can be availed from financial institutions and banks. Some loan aggregators such as buddy loan, money view, and Lendingkart allow personal loans to be availed through online applications. | A top-up loan can only be availed from the same loan lender of the previous loan. |
Also Read: The Right Time To Take Personal Loan
While a top-up loan and a personal loan are very different from each other. They do have their own advantages and disadvantages which makes them unique. Read on for more details.
Advantages and Disadvantages of a Top-up Loan
When you have already taken a loan but are in need of some extra funds, a top-up loan might be what you need. A top-up loan is advantageous in many ways but also has disadvantages. Some of these are:
Advantages:
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Little to no documentation:
Usually, no new documents are required for top-up loans, as the necessary documents have already been submitted to the lender for the previous loan.
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Quick processing time:
Top-up loans are usually given to those who already have an existing loan. This makes the processing time for it much quicker as the approval and verification of the documents have already been done for the previous loan.
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Usage flexibility:
How a top-up loan is used depends on the borrower. There are no restrictions on taking a top-up loan on your existing one.
- Low-interest rates:
When you have an existing home loan, it is better to take a top-up loan instead of a personal loan if you need additional funds. This is because the top-up loan interest rate is usually lower than a personal loan. The interest rate will be the same as that of a home loan.
Disadvantages:
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Unavailable to new applicants:
A major disadvantage of top-up loans is that they only apply to existing customers. So also, if applicants have defaulted payments in the past and have a bad credit history, they cannot avail of a top-up loan.
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EMI will increase:
With the addition of a top-up loan, your EMI will also increase, which means a higher repayment amount.
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Fixed-principal amount:
The principal amount for a top-up loan will depend on the outstanding amount of a home loan during repayment. However, the amount will also differ from one bank to another. Usually, a top-up loan should not be more than 70%-80% of the property’s value.
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Can be availed from an existing bank only:
One can avail of a top-up loan only from an existing banker since a lender can only give it on top of another loan. This means there is no possibility of comparing different rates to get the best benefits out of the loan.
Advantages and Disadvantages of a Personal Loan:
A personal loan is a go-to loan for many people. It is one of the easiest loans to avail of as it is an unsecured loan, and at the same time, they can take it through online loan applications. However, like every other loan, a personal loan has its own advantages and disadvantages. These are:
Advantages:
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The flexibility of use:
A personal loan is in high demand mainly because people can use it for multiple purposes. People take out most loans for a specific purpose – for example, a home loan is taken when building or buying a home, and a car loan is taken specifically to purchase a car. However, with a personal loan, there are no restrictions on how you use the loan. You can use it to fund your dream wedding, vacation, medical expenses, or even buy a new phone.
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Reasonable loan amount:
When applying for a personal loan, people can get their required amount as long as the borrower is eligible. There is strictly no fixed amount on how much loan you can get.
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Short processing time:
The best thing about personal loans is their processing time which is usually short, especially when you apply for the loan through online platforms. The processing time can be as short as 24 hours if all the documents submitted are approved.
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No collateral:
No collateral or security is needed with a personal loan as it is an unsecured loan
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Flexible term:
A personal loan has flexible repayment terms of 1 to 5 years. A borrower can choose a loan that fits their requirements and repayment capabilities. Flexible loan tenure is essential as it reduces the repayment burden.
If you are in need of a personal loan, try Buddy loan. Buddy loan is a loan aggregator whose lenders give out loans at interest rates starting from 11.99%.
Disadvantages:
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Processing fee:
The processing fee of a personal loan is usually high as it is an unsecured loan. A higher processing fee usually means you can get a lower loan than what you applied for. Banks and lenders usually ask for a certain percentage of the loan amount as processing fees.
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Interest rate:
The interest rates for personal loans are usually high for an unsecured loans. The interest rate is generally 3-4% higher than other secured loans.
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Repayment rigidity:
The repayment for a personal loan is more rigid than for other loans. Bankers will hardly allow changes to the repayment schedule once it is set. This also means that some bankers will charge fees on prepayment and foreclosure of a loan.
Which Loan offers to Choose?
When choosing between a top-up loan and vs personal loan, the decision might not come easily. The decision you come to will depend on a lot of things. Sometimes, taking a top-up loan will be the best option when the plan is only to cover additional expenses beyond the existing loan’s coverage. By doing so, a borrower will receive a loan at a lower interest rate, and at the same time, the loan will be disbursed quicker. No documentation will be needed as the lender is the same as the existing loan.
However, if there is a need for an enormous sum of money, and the borrower is comfortable with paying the whole amount at a higher interest over a long-term period, then getting a personal loan would be recommended. Instant personal loans without documents are easily accessible and convenient when you need a large amount of money for long-term financial commitments. Buddy Loan has lenders who offer instant personal loans at affordable interest rates.
It is important to remember to take a loan, especially a top-up loan, only when there is an absolute need for additional cash for urgent or emergency expenses like home improvement, an unavoidable medical bill, etc. Remember that taking extra money as a loan puts additional pressure on your budget and compels you to optimize general expenses to ensure timely payment. Since both personal and top-up loans have their advantages and disadvantages, how do you choose which one is right for you?
Top-up Loan vs Personal Loan: Tips For Choosing The Right Loan
Many take loans when they have urgent financial commitments and require more money. Independent financial experts recommend that borrowers do homework before taking small online loans. Research and analysis, vigilance, and straightforward communication with bank executives improve your knowledge about different loan packages and allow you to choose what you need most. Another important factor to look out for is the loan amount. Always remember to evaluate the loan amount that you will need.
Also Read: Personal Loan Insurance Plans: Protect Yourself from Different Risks!
Evaluate The Loan Amount You Need
The primary purpose of any loan package is to provide people with the necessary financial help. However, financial problems have pushed people to take out a loan sooner than later. Before availing of a loan, make sure to evaluate the amount of loan that will be required. This will dictate the kind of loan that would best fit your needs. Before taking a loan, get complete information and analyze the requirements impartially. Evaluating the loan amount beforehand will help you avoid taking a loan beyond your financial capability. Take only the required amount of money as a loan to ensure you repay all EMIs on time. Furthermore, before taking the loan you should be aware of the terms and conditions of the loan.
Know the Terms And Conditions of The Loan
All borrowers should familiarise themselves with the terms and conditions of the loan agreement. Personal and top-up loans have several clauses and terms and conditions that should be understood. Knowing all the terms and conditions of a loan agreement enables you to perform your duties well, protect your interest, and avoid penalties and legal actions. Financial terms can be challenging to understand, so seek the required help from bank executives and try to understand all terms and conditions of the loan agreement. Only sign the contract paper if you think the loan is in your favor and always seek expert advice.
Seek Expert Advice
Keeping a close eye on the latest development in the financial market is challenging. To avoid choosing an outdated loan package that doesn’t suit your interest, you should seek expert advice on personal and top-up loans and obtain detailed information. The more information you have, the better your decisions will be.
Conclusion
The discussion about personal loans vs top-up loans has been going on for several years. Both loan have pros and cons, like any other financial product. Understanding the differences between the two and when to choose which will assist you to make better-informed decisions.
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Frequently Asked Questions
To know if you are eligible for a personal loan, you can check various bank websites, as each bank has different requirements. There are also many eligibility calculators that are available online that you can check. You can also check your eligibility from Buddy Loan.
When you default on a repayment, it will affect your credit score. The interest rates on all future loans that you will take will also increase. To avoid payment default, you should reach out to your banker and try to get the loan terms amended or check if debt consolidation is possible for you.
Whenever you take a top-up loan, a new loan account will be generated. This new account will have the amount that is due for repayment for both the existing loan and the new top-up loan.
Yes, you must pay your existing EMI until the top-up loan amount gets approval and transfer into your account. Failure to do so may result in a default on your loan payments and negatively impact your credit score.
