Financial emergencies can happen to anyone. Being unpredictable, it's always important to stay prepared for such unforeseen incidents. Some incidents might force you to make heavy financial investments that need funds. Unfortunately, not everyone is financially prepared to tackle bad times.
Today, approaching your family or neighbours is not a great option as it takes time. Moreover, approaching your family will compromise your self-respect. Interestingly, personal and top-up loans have become a boon to people looking forward to finding financial support in an emergency without asking anyone.
Let's understand this situation with the story of Aman.
Story of Aman
Aman is a 35-year-old marketing manager in a reputed IT firm. He is drawing a handsome salary being at managerial level. He recently applied for a personal loan of 10 lakh for his sister's wedding. After one year, he was looking for more financial support to renovate his house. He approached the bank for an additional personal loan. However, the bank recommended him take a personal loan top-up that comes with an easy and quick approval process.
This brings numerous queries associated with the personal loan top-up he started searching for. Below is detailed knowledge about top-up personal loans that you should also know before getting one.
What is a Top Up Personal Loan?
Top Up Loan is the supplement loan amount you can get in addition to your ongoing personal loan. In the most traditional definition , the lender will give you as additional loan whatever principal amount you have repaid in your original loan. The entire loan is then rebooked to the original loan amount. Please note that you will be eligible for a top-up only if you have a good repayment track record on your existing personal loan. Top Up loans can also go beyond the original loan amount. However, such top-up loans often require additional documents.
Here Aman was already running a personal loan of 10 lakh, of which he repaid 2 lacs which makes him eligible for an additional loan of 2 lakh as the personal loan top-up. Before you apply for a top-up loan, you should know the nitty-gritty before making the final decision.
What are the Benefits of Taking a Top-Up Personal Loan?
When we talk about top-up personal loans, there are multiple benefits that you must consider.
No Collateral: No collateral requirement is the biggest trait of choosing a personal top-up loan. Yes, if you opt for a personal loan top-up, you won't require pledging your asset or add a guarantor in the loan application.
NOTE: Top-up personal loans are also unsecured loans, where banks give you an additional amount based on your financial status.
Instant Approval: Like a personal loan, the top-up loan comes with an quick approval process. It means you will get approval with minimal documentation. The loan disbursal process is simple and quick.
Extended Repayment Tenure: Apart from your ongoing personal loan, the top-up loan provides extended repayment tenure, making it easy to settle your debts hassle-free. You can even ask for a tenure extension after negotiating with the bank.
Additional Offers: You can avail additional discounts and offers based on your credit score and relationship with the current bank.
NOTE: Additional offers vary from one borrower to another.
Affordable Interest Rates: The rates of interest on a top-up are often lower than the original loan.
Eligibility Criteria for Top-Up Personal Loan
You should know the eligibility criteria for a top-up personal loan before applying. Borrowers with a personal loan can ask the lender for a top-up loan. It's always an excellent option to choose a top-up loan and curb financial emergencies when you don't find any concrete option.
How to Apply for Top-up Personal Loan?
Today, you can easily apply for a personal loan top-up from your existing lender or any other bank. Firstly, you should check if the current lender is offering you a top-up loan on your personal loa If yes, you can submit your request and wait for the processing. Usually, the top-up loans don't require documentation as your documents are already submitted for the existing personal loan account. Please note that you will be eligible for a top-up only if you have a good repayment track record on your existing personal loan.
Common Reasons for Personal Loan Top-Up
Now you have strong knowledge about top-up personal loans, it's time to know the common reasons people prefer top-up loans. Home renovation or land purchasing is the most common reason for getting a top-up personal loan.
Another reason is settling your old debts. Often borrowers choose a top-up personal loan to settle their old debts or consolidate the ongoing debts and bring them under one umbrella.
More reasons include settling medical expenses, and more. In short, you can take a personal top-up loan for any reason you want.
Top-Up Personal Loan Interest Rates
Interest rate matters when you are already paying for the personal loan EMI. You must note that the top-up loans are offered on your existing personal loan and are based on your track record on your existing loan. Hence the top-up loan interest rates are usually lower than the original personal loan.
Tax Benefits of Personal Loan Top Up?
Most of you would wonder about the tax benefits of getting a personal loan. You would be amazed to know that the personal loan top-up is eligible for tax benefits. There are pointers that you should note before taking tax benefits from your top-up loan.
Your PL Top Up loan will only be eligible for tax benefit if the lender has sanctioned it for the utilization for the purchase of a home. Here your principal and interest will be considered for tax benefit.
The principal amount will be exempted from tax slab under 80C, while the interest paid will be considered under Section 24 of the Income Tax Act. Moreover, you can also get the tax benefit if your top-up amount is used for home renovation.
Top-Up Loans - With No Security
The best part of why most people prefer taking a personal loan is that it comes with no collateral need. It means you don't require pledging any asset in exchange for a personal loan. Likewise, the top-up on your personal loan also has the same rules. In a personal loan top-up, you are given an additional loan (apart from an existing personal loan) without any collateral. However, you should know that the interest rate of top-up loans is a bit higher than personal loans.
Higher Amount Available Under Top-Up Personal Loan
A big question most borrowers have is, what is the maximum loan amount you can draw from the bank? Usually, it depends on how much amount you need and the eligibility factors that were earlier used for personal loan applications.
It becomes easy for people with a personal loan to qualify for the top-up loan. Usually, you are eligible to get up to 70-80 percent of the personal loan amount as a top-up loan. Interestingly this is a significant amount compared to what you received as a personal loan.
However, you must note that every loan (personal or top-up loan) comes with processing fees that you need to pay for the processing and disbursal of your loan.
At last, you must learn how to repay personal and top-up loans on time. Below are some points that will help you clear the debts hassle-free.
Prepare Your Budget: Preparing your budget is the most crucial component of closing your loan accounts before their tenure ends. Your monthly budget will include all your expenses and existing EMIs. It will help you manage every penny and ensure no delay in EMI payments.
Add Lump-sum Amount: Some loans let you pay a lump-sum amount once or twice a financial year. The additional payment towards such loans helps you lower the principal amount, closing your loan account in a short tenure.
Avoid Applying for New Loan: It's highly recommended to plan your current loan repayment. Moreover, you should avoid applying for a new loan. This will help you focus on the existing loans and clear them before adding new debt to your bucket.
Lower Your Expenses: Most essential is limiting your expenses and focusing on EMI repayment. Once your current EMIs are paid on time, you can manage your left-over amount for the monthly expenses. In short, you should prioritize your EMI over your expenses and savings.
That said, you can now make an intelligent move toward applying for a top-up loan and manage your urgent expenses without mental and financial stress.
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