A top up loan is a facility provided by financial institutions, allowing borrowers to avail funds over and above their existing home loans. The best example is a top-up mobile recharge plan, which provides users with an extra balance on their existing recharge plans.
Features of a top-up loan
Salient features which borrowers would get by availing this loan are-
- No end-use restrictions: Borrowers can avail a top up home loan and use it for various purposes like home décor, furnishing or any other emergency purposes. It can be used as a personal loan.
- Flexible repayment tenor: The repayment tenor is flexible, although it differs from one lender to another. However, in general, it is available for a period of 20 years or until the borrower repays the existing home loan. While calculating the repayment tenor, the borrower’s profile, age, property value, and income are considered.
- Higher loan amount: Although the amount of money offered as a top up loan varies in different financial institutions, the home loan and top up loan can constitute 70-80% of the property’s value.
- Low-interest rate: Most financial institutions charge the same interest rate on the top up loan for a home loan. However, few financial institutions can charge a higher interest rate on top-up loans than home loans.
Benefits of a top-up loan
The benefits of a top up loan are-
- Cheaper option: The interest rates levied on these loans are much lower than those charged on personal loans, credit cards or car loans. Thus, borrowers opt for this as a cheaper alternative.
- Extended repayment tenor: The repayment tenor of these loans is higher than that of personal, gold or car loans.
- Higher chances of approval: Since the borrower is a loyal customer of the financial institution chances of getting an approval for a top up loan increases.
- Avail Tax benefits: Borrowers can get tax benefits if the loan amount is used for any extension, repair or construction of the home. They can also avail tax benefits from this loan if used for education purposes of their children. However, borrowers can also avail tax benefits from under-construction properties.
Eligibility to avail a top-up loan
However, besides knowing the benefits and features of a home loan, a borrower must also know whether they can apply for a top up loan. The eligibility criteria are-
- The credit report of the borrower must be good.
- The borrower already has a home loan with the financial institution or bank.
- The EMI repayment record of the borrower must be good and timely paid.
- A borrower has a valid mortgage in the name of the financial institution or bank.
Various banks and financial institutions offer the facility of home loan balance transfer with a top up loan. However, if individuals choose this option, they need to consider the foreclosure charges that the existing bank will claim, the payable processing charges for transferring the loan to another lender and the difference in interest rate. So before choosing this option, borrowers need to know how a balance transfer works and decide accordingly.
Several financial institutions extend pre-approved offers to expedite home loan process. These offers are available on a range of financial products, such as home loans and loans against property. Individuals just need to enter their name and contact number to check their pre-approved offers.
Top up loan is a great facility offered by financial institutions, making the availability of funds easier and hassle-free.