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Top-Up Home Loan Vs Personal Loan

In today’s dynamics, unexpected expenses or need for funds can arise at any time. Such is the level of inflation that often these needs require an amount which cannot be met through savings. In such instances, other sources of finances must be evaluated. In case you have an ongoing home loan, then the present fixed obligations would be considerable. However, you would also have the option of availing top-up home loan to meet your need for finance. Although another option as a source of fund available is a personal loan.

Let’s dive deep into both these sources to understand their nitties and gritties.

The top-up home loan is the additional loan amount you borrow on your home, which is above the existing home loan. The amount you can avail, its tenure and rate of interest are decided based upon the existing outstanding balance, remaining tenure and rate of interest at that point of time. You can either choose to avail top-up loan from an existing lender or from another lender by first opting for balance transfer of your home loan. 

The personal loan is an unsecured short-to-medium term loan which can be availed for any purpose whatsoever. It requires minimal paperwork, and you can get the amount in a week. The personal loan does not require any collateral. It is advanced based on your credit score and income.

Comparison of Top-Up home loan and Personal loan

  1. Interest rate: The interest rate of home loan top-up is lower than that of personal loan. Although most banks charge a higher rate of interest for top-up than for home loan, it is still not as high as the rate for a personal loan.
  2. Amount: The loan amount in case of home loan top-up depends upon the bank’s policy along with actual home loan amount and remaining outstanding balance. Whereas in case of personal loan, the maximum loan amount pre-set by the banks which ranges around Rs. 25 lakhs. The loan amount is determined based on the risk profile of the applicant and not just based on income or credit score.
  3. Tenure: The maximum tenure for the home loan top-up can be up to 20 years. On the other hand, the maximum tenure for a personal loan is 5 years. You can choose your tenure in the personal loan, but it cannot exceed the maximum limit of 5 years from any lender for any borrower.
  4. Processing: Since both personal loan and home loan top-up require minimum paperwork, the processing time for both is considerably lower. However, comparatively the personal loan is disbursed faster than home loan top-up.
  5. Purpose: Both personal loan and home loan top-up can be used for a variety of purposes like home renovation, travel expenses, wedding expenses, medical emergency, business, education, etc. You have no obligation for the end-use of borrowed funds in both the loans.

How to Select?

When you consider the key parameters of both the loans, then you will find that home loan top-up holds an advantage over a personal loan. However, you must keep the following points in mind:

  1. You can avail top-up either from the same lender or from a different one after transferring your home loan balance.
  2. The processing time of top-up can go from a week to 12 days.
  3. To avail top-up, you just have the history of paying timely EMIs, at least the last 6-12 ones.

The rate of interest and longer tenure gives an advantage to top-up loans even though the processing time for personal is maybe a little less. However, you must remember that home loan top-up is availed against the collateral of your house

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