InvestorQ : What is a top-up loan?
Indrajeet Kashyap made post

What is a top-up loan?

Manisha Mehta answered.
3 years ago

A top-up loan is an additional lump sum of money that you can borrow from a lender, by adding it to your existing home loan.

A top-up loan is usually taken by customers who want to fund their big-ticker expenses like say home renovations, children’s marriage, etc.

If you have an existing home loan and have made timely repayments towards it, then you might get the option of borrowing an additional loan. This amount is usually equal to the amount you have already paid off on your current home loan and hence, it is named top-up loan.

Interest rates on a top-up loan are less than a personal loan and it requires almost little or no paperwork to process the loan. Hence, this loan is slowly becoming a favourite amongst customers.

From a lender’s point of view, as you have already started paying off your original home loan, your EMI amount starts decreasing, as does the payable principal. Therefore, by availing the top-up loan, you are only utilizing the amount that you have already paid off. Because you were already approved for the same loan amount earlier, the bank considers offering you the additional top-up loan as a low risk option.