Top up Loan or a fresh loan? What should you do?

Mr Gaurav is an Engineer based out of Bangalore currently living with his wife and parents. The family is living a comfortable life until a sudden expense comes up which needs to be addressed at the earliest. But Gaurav is unable to identify the source from where he can arrange money.

Both the couple come to the conclusion of taking a fresh loan, but Gaurav was sceptical of going through the rigorous process of loan application and discussed the same with his friend. His friend suggested him to go for a top up loan on his existing loan. His friend explained to him the below factors to consider for a top up loan.

Availing a top up on the existing loans comes with the benefits like:

• Hassle-free documentation (as your documents are already submitted)
• Lower processing fee
• Longer tenure for top up loans
• Avail Tax benefits if the amount is used for education/home renovations
• Faster disbursement
• Ease of process (as your documents, KYC, bank account number are already with the lender)
• Attractive interest rates

Factors involved in getting your top up loan easily

• You are a reliable customer
• You have timely repayment history
• You have valid and clear documents

Which loan products offer top up facility?

Many loan products offer top up facility, but to name a few:

• Home Loan
• Gold Loan
• Personal Loan

Are the ones that are known for providing top up facility.

Let us give you a calculative theory to understand the top up loan facility more clearly

Suppose Gaurav currently has a Home Loan of Rs. 25,00,000 for 20 years on an interest rate of 12.5 % and the interest rate of a fresh Personal Loan will be 14% (approx.)

The above interest rates are considered of standard Financial Institutions, but these interest rates will be higher approx. 18-20 % if the lender is an MFI (Microfinance Institution)

Therefore monthly Home Loan EMI will be Rs. 28,404, whereas monthly EMI for Rs. 1,00,000 Personal Loan for 2 years at 14% interest will be Rs. 4,801. Hence Gaurav will have to shed Rs. 33,205 per month eventually.

Moreover, the point here is that if Gaurav chooses to opt for a top up loan he can get it for 12.5% (approx.) at the same rate on which he had taken the Home Loan on whereas if he takes a fresh loan he has to initiate fresh applications, submit documents and go through the rigorous loan process once again.

And not to forget the interest rate on Personal Loan will be higher also it will be subjected to approval and there are chances that it may even get rejected.

So here for Gaurav, the ideal option is to go for a top up loan in the same Financial Institution from where his current loan is running rather than initiating a fresh loan with a higher interest rate.

For more information on loan services visit: https://fedfina.com/