A top-up loan, as the name indicates, is an amount that is borrowed to supplement an existing home loan. When a medical emergency or an unexpected cash crunch situation crops up, we usually think of taking a personal loan or selling assets like gold or property for immediate relief. However, if you already have a home loan, then financial experts suggest taking a top-up loan, which is more beneficial.
Here’s a short and simple guide to everything you need to know about top-up loans.
Top-up loan features
Most banks and financial institutions offer top-up loans, and it is a reasonably simpler process to get one.
● Quick approval – Applying for your top-up loan from the same bank as your existing home or personal loan ensures a fast approval. The bank has already done its necessary checks and is familiar with your credit history.
● Minimal documentation – Again, due to your existing relationship with the bank, you can get a top-up loan with minimum documents.
● Longer durations – Top-up loans have the advantage of having longer tenures than gold loans, personal loans, and vehicle loans.
● Tax benefits – You can claim tax benefits on a top-up loan depending on the usage.
● Lower interest rates – Compared to vehicle or personal loans, top-up loans have a lower rate of interest ranging between 9% and 12%.
● No collateral – Top-up loans can be availed without the need for any collateral or a guarantor.
Points to remember
- You need to have an existing home loan and flawless payment history of at least a year to be eligible for a top-up loan.
- Top-up loans can be used for multiple purposes, from funding your child’s education to expanding your business to covering emergencies.
- Top-up loans need to be repaid within 20 years or the duration of your existing loan repayment.
- On average, you can only borrow up to 75% to 80% of the value of your property. However, the percentage differs from bank to bank.
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