Taking out a loan of any kind implies a significant amount of responsibility and financial commitment. This is because whatever you borrow is a loan that must be repaid during the time period you set, plus interest. As a result, you should proceed with caution and consideration while asking for a loan. Most banks and non-banking financing organizations provide many types of loans to meet people’s various demands, such as home loans, car loans, personal loans, gold loans, and so on. Diverse sorts of loans are used for different purposes and help people meet their demands.
People are frequently confused while deciding between a top-up home loan and a personal loan. While a home loan is the best option for purchasing a new home, a top-up home loan can assist you in obtaining additional funds for a home extension, renovation, or improvement. These requirements can also be met with the help of a personal loan. Consider the following comparison of a top-up home loan vs. a personal loan before taking a decision.
What is a home loan top-up?
If you already have a house loan, your lender may allow you to borrow additional funds in addition to your current loan. A “Top-up Loan” is a type of supplementary loan offered by your bank. A lender would not issue a top-up loan to every consumer with a home loan, but only to those who have made timely payments. So, if you’re a reliable customer who pays on time, sees if this option is available to you.
What is a personal loan?
All of the main lending institutions provide personal loans, which are unsecured loans. The loan can be applied for online from the comfort of one’s own home or office. This loan’s interest rate is a little higher than others. It, on the other hand, has no limitations as to what it can be used for and can be used for any personal purpose.
Top-Up Loan vs Personal Loan
When compared to personal loans, top-up loans have a lower interest rate. We all know that personal loans have a high-interest rate because they are unsecured loans. Top-up loans, on the other hand, use your home as collateral. Because a top-up loan is only available to exist home loan clients and the bank has all of the requisite documentation, it is quite safe. As a result, if you pick an add-on loan over a personal loan, you can benefit from lower interest rates.
You can get tax benefits up to a particular amount once a top-up loan is approved if you utilize the money for pre-defined activities like home renovations or extending your home. You may not be allowed to do so if you take out a personal loan to renovate your home. Before taking out a personal loan, check with your bank to see whether you qualify for any tax benefits.
A top-up loan’s repayment period is frequently variable. When opposed to personal loans, top-up loans usually have a longer-term. Most banks will offer you a top-up loan for the remaining term on your existing house loan. As a result, it’s a better alternative for personal loans.
When you apply for a personal loan, the processing time is usually quite lengthy. This is because you are applying for a loan for the first time, and the bank must check your paperwork, evaluate your profile, and verify your information. When it comes to top-up loans, however, the bank already has your documents and has confirmed your information. This substantially reduces the processing time. Customers can apply for a top-up loan online through net banking, and the bank will disburse the funds within a few hours.
As previously said, when you apply for a top-up loan, the bank will already have all of the essential documents because you provided them when you applied for a home loan in the first place. As a result, if you pick an add-on loan, the documentation process is simple and quick. A personal loan, on the other hand, will require you to fill out numerous papers and submit numerous documents.
The most significant distinction is that a top-up home loan can only be taken out by people who already have a home loan. While everyone can apply for a new personal loan to meet his or her financial needs. If you have a home loan and need money, don’t forget to consider things like the EMI amount and the tax benefits before applying for one of these loans.