What are the things you need to know about top-up loans?


The prices of all the commodities are constantly increasing and it becomes difficult to sustain on an average salary in such a condition. There might be times when you feel that you need some extra funds. But, availing a new loan is not the wisest option when you already have a Home Loan debt to pay off. In such a case, you can opt for a top-up loan. Since the Reserve Bank of India has removed the prepayment charges, taking a Home Loan has become very easy. There are many lenders which are offering top-up loan while transferring the balance. This way an individual doesn’t have to pay penalty charges and can take another loan over the existing loan.

When you are in urgent need of some funds, you can avail a Top Up Loan on top of your existing Home Loan. You can ask for the additional amount as long as the amount is not involved in anything illegal. The financial institutions generally, do not monitor the usage of the top-up loan funds.

A lot of lenders are providing attractive offers so that the borrowers transfer their existing Home Loans to them. In such a case, people take the benefits of the top-up loan with lower interest rates and get longer duration to repay the debts. If an individual has taken a Home Loan for the duration of 10 years and he asks for a top-up loan over the existing loan, then the period to repay the top-up loan can extend up to 5 years more. Which means he can repay the whole debt within 15 years. The tenor of repaying a top-up loan cannot be more than 15 years.

People take top-up loans for the purpose of fulfilling other expenses like house renovation, children’s education, emergency requirements or family vacation etc. The tax exemption is also available on top up loans only if you are using the loan amount for house renovation or home reconstruction and not for any other purposes. When you go to the lenders for taking a top-up loan, they will ask you the purpose of taking the loan and if the reason is your child’s education or some other reason, then you will not be eligible for the tax exemptions.

There are customers who take top-up loans to repay their other loans. For example, personal loans. This is the best option if you know that you have the capability to repay the top-up loan with a Home Loan. This way you can pay off all other loans with the help of top-up loans. The banks and NBFCs suggest taking a top-up loan to repay other debts as it is quite cheaper.

To know how much funds you have to pay till the tenor ends, the banks and NBFCs provide Home Loan top-up calculators to the borrowers. The borrowers have to fill the tenor, his previous loan (Home Loan), Home Loan interest rate etc. With the help of all these information, the lender calculates the loan amount and the interest amount for further procedure.

You should avail a top-up loan only if you are in urgent need of the funds. Because if the tenor is less, and the amount to be paid is huge, then you will end up paying a high-interest rate to the lender. But, if you are paying all your debts under one loan i.e. top-up loan, then lower interest rate and longer tenor will be sufficient for you to repay all your debts.