Selecting the Correct Loan for You – Top Up Vs. Personal Loan

Debt or loans may it be Kotak personal loan at nominal Kotak personal loan interest rates or HDFC personal loan at a higher interest rate or a personal loan through other lenders, play a considerable role in your financial life. Loans endow you with the major means to not just manage your financial plans well like purchasing a home, 4-wheeler, or running a company but they even come in handy when you require funds for medical expenditure, leisure activities, or educational purposes. However, as much as debt serves as a major booster in your journey towards your financial goal, it is necessary to practice great caution while selecting the debt kind, ensuring that it is the correct match for your requirements. 

Two such credit options, which are generally taken by many are top-up loans and personal loans. A personal loan refers to an unsecured loan option that is known for providing instant funds. A reliable income source and a good score guarantee the very possibility of attaining a personal loan at a competitive rate of interest. However, a top-up loan as its name suggests is obtained as an addition to the previously prevailing loans, often over and above an existing housing loan. Based on the existing credit option, a top-up home loan can be either unsecured or secured in nature. 

Understanding the importance of a personal loan – 

A personal loan is a type of unsecured credit option that financial institutions, NBFCs and online lenders provide to you seeking finance for your own needs. Your credit score, income and repayment history are majorly used by lenders to assess your eligibility for a loan. Since the very advent of online lenders, it is simple to gain access to an online personal loan. All you require doing is filling out an online form, attaching the required personal loan documents for assessment or evaluation and sitting back and relax. Once the lender efficiently reviews and then approves your submitted personal loan documents, the proceeds on the loan are then transferred to your bank account instantaneously. With lenders like Kotak personal loan, HDFC, Axis Bank, etc., the approval for personal loan procedure is convenient, stress-free, hassle-free and requires limited document submission. There are zero restrictions on personal loan end usage. Unlike a home loan or business loan, a personal loan can easily be utilised to meet any goal or mitigate any financial requirement. You can use the personal loan to pay for the vacation trip, complete home renovation, pay for a medical exigency, purchase new furniture, etc. 

Also Check: Kotak Personal Loan Interest Rates

Understanding the importance of top-up loans – 

A top-up loan refers to a loan that is availed over and above the existing or ongoing loan. The ongoing or existing loan can be a home loan, personal loan, or business loan. There are certain myths that a top-up loan is available just on the prevailing home loan. That is not a true fact. As long as the lender endows you with the top-up facility, you can opt for them for distinct kinds of loans. Depending on this, the major specifics of the top-up loan may be set. For instance, if the existing credit option is security based, the top-up credit option might be endowed as a percentage of the security value. There can be specific stipulations for qualifying for the top-up loan. For instance, you as a borrower must have finished a specific number of payments in the EMI form on the underlying loan before you become eligible for the top-up loan. 

Personal loan vs. top-up loan – Which one you must opt for?

Let’s discuss a few attributes that make a personal loan and a top up loan distinct from one another – 

Source of borrowing – 

  • Personal loan – Any lender may offer you a personal loan at any time, as long as you mitigate the eligibility parameter and can submit the requested personal loan documents. 
  • Top up loan – It can be taken up just over your outstanding loan from the same lender. If you as an individual want to opt for a top-up option from another lender, you require transferring your entire outstanding loan to a new lender. 

Repayment tenure – 

  • Personal loan – The repayment tenure of a personal loan is generally as high as 5 years. 
  • Top up loan – The top-up loan repayment tenure is very flexible and is usually aligned with the repayment tenure of the prevailing loan. Thus, if your prevailing loan is long-term in nature, the rest of the repayment tenure for the top-up loan is usually fixed as the repayment tenure for top-up loan. 

Rate of interest –

  • Personal loan – The personal loan rate differs based on the financial institution. The rate of interest levied on the loan even depends on the parameters like employment details, income, credit score, age, etc. 
  •   Top-up loan – The top-up loan interest rate is based on the underlying prevailing loan. The interest rate levied on the top-up loan generally is higher than the base loan.

Processing period as well as the accessibility – 

  • Personal loan – The personal loan processing takes a while as the lender runs a full-fledged thorough check on the background, which ranges anywhere from authenticating the personal loan documents, past loan repayment background, credit score, income stability, age, etc. Generally, if you are a no-default borrower, then you may be preferred by the lender when lending a personal loan. 
  • Top up loan – The processing time for the top-up loan is extremely less as the bank or financial institution already has your history and your authenticated documents. Generally, if you are a regular EMI-paying borrower, then you may be preferred by the financial institution or bank to lend the top-up loan. 

Maximum loan proceeds – 

  • Personal loan – The personal loan proceeds a borrower can take up differs from one lender to another according to their limit. However, parameters like score and eligibility conditions may impact the limit. 
  • Top up loan – Note that a top-up loan is a fixed percentage of the past loan value. It is a stipulation that differs across lenders as well as the kind of prevailing loan.

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