Taking up a loan is rightly a huge responsibility and financial commitment, especially if it is a home loan. Once you take such an amount as credit, almost all your expenses must be planned around it. But what happens when you have an emergency situation or require extra funds for something unplanned? In such a situation, many would consider diverting some funds from repaying their loan to the unprecedented need – leaving them in a fix.
But worry not, courtesy of the facility of top up loans that are here to help you in time of need.
If you have an existing home loan and need some extra funds for your personal or professional needs, consider taking a top up loan. A top up loan is a service that you can avail of over and above your existing home loan without having to apply for a separate loan or go through a new documentation process.
In this blog, we will explain the advantages of top up loans and how they work.
What Are Top Up Loans?
A top up loan is an additional loan that you can get from your existing home loan lender, provided that you have a good repayment history and sufficient equity in your property. As the name suggests, any such loan is simply to ‘top up’ an existing loan, thus freeing one from emergency situations and financial uncertainty.
The amount of top up loan depends on your eligibility, which is determined by factors such as your income, credit score, property value, and outstanding home loan balance. Of course, having a good relationship with your home loan service provider is paramount. If your financial service provider is convinced of the sincerity of your need and approves of your disciplined, regular loan repayment track record and the financial ability to repay a topped-up loan, then your chances of acquiring one improve drastically.
Typically, the top up loan amount ranges from 10% to 100% of your original home loan amount.
How Do Top Up Loans Work?
To apply for a top up loan, you need to have a regular home loan account with the same lender for at least six months to one year. You must also have a clear repayment record and no defaults or delays in your EMIs. You can apply for a top up loan online or offline by filling out a simple application form and submitting the required documents. The lender will verify your details and check your eligibility for the top up loan. If approved, the lender will disburse the amount to your bank account within a few days.
What Are the Advantages of Top Up Loans?
Top up loans have several advantages over other types of loans, such as personal loans or gold loans. Of course, it goes without saying that this extra sum of funds serves as emergency life-savers, making it a significant unsaid advantage. As for the specific benefits of top up loans, some of them are:
- Lower interest rate: Top up loans usually have a lower interest rate than personal loans or gold loans, as they are secured by your property. The interest rate may vary depending on your lender, but it is generally around 1% to 2% higher than your home loan interest rate.
- Longer tenure: Top up loans have a longer tenure than personal loans or gold loans, as they are linked to your home loan tenure. You can repay the top up loan, along with your home loan EMIs, over a period of up to 20 years or more.
- Higher loan amount: Top up loans offer a higher loan amount than personal or gold loans, as they are based on your property value and outstanding home loan balance. You can get a top up loan of up to Rs. 50 lakhs or more, depending on your eligibility for top up loans and lender's policy.
- Tax benefits: Top up loans also offer tax benefits under Section 24 and Section 80C of the Income Tax Act. These tax statutes are applicable if you use the funds for home renovation, construction, or purchase. You can claim a deduction of up to Rs. 2 lakhs on the interest paid on the credit amount under Section 24, and a deduction of up to Rs. 1.5 lakhs on the principal repaid on the top up loan under Section 80C.
Final Thoughts
Top up loans are a convenient and cost-effective way of meeting your financial needs without compromising on your home loan repayment. They offer lower interest rates, longer tenures, higher loan amounts, and tax benefits compared to other types of loans. However, before applying for a top up loan, you should assess your repayment capacity and compare the offers from different lenders to find the best deal for you.
