# Save 2% extra by availing top-up car loan, do your maths first

Car, as we all know, is our dream and to achieve it we do everything possible like making savings in the form of investment products like Fixed Deposit, Recurring Deposit, National Savings Certificate (NSC), etc. After making all the efforts, one day we manage to get the car by either paying its full price or by availing the loan. But rarely do you see people following the first option as nobody would like to pay the lump sump in one go. Therefore, you take car loan and repay it in monthly installments or EMIs. In the mid of a car loan period, you feel the need of some funds and start thinking about taking personal loan to meet your requirements. You can take personal loan, but it will take much out of your pocket. So, the feasible solution would be top-up car loan, which is the sort of credit extended by banks and NBFCs to individuals on running loan against the car. With top-up car loan, 2% lower than in the case of personal loan.

Top-up car loan

Anyone having a car loan but finding difficult to pay the next EMI can get the top-up loan from banks and other financial institutions. Using the scheme, you can get the benefits of foreclosure of previous car loan and an additional loan with interest rate 2% lower than in the case of personal loan.

Mathematics behind top-up loan

For instance- HDFC Bank runs a special scheme for people who want cash against the financed car. As per the scheme, the bank forecloses the running car loan and provides another loan. Depending upon the eligibility, you can get a specific amount of credit. In order to avail this scheme, you must have paid 18 EMIs of your car loan on time.

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Formula to calculate loan amount eligibility=EMI amount x tenure paid x multiplier (1.5)

Let us understand the concept with the help of an example. Sohan has a running car loan of say Rs 4,00,000 from Bank A. He paid EMIs of 12,000 for a period of say 24 months. So, his total EMI payout turns out to be 2,88,000. Sohan needs another Rs 1,12,000 to close the loan. Read below the table to know the total loan amount eligibility of Sohan.

Table showing the eligibility loan amount of Sohan on financed car

Particulars Cost
Loan Amount Rs 4,00,000
Loan Tenure 5 years
EMI
Rs 12,000
Tenure Paid
24 months
Total amount paid  Rs 2,88,000
Remaining amount left to close loan Rs 4,00,000-Rs 2,88,000=Rs 1,12,000
Top-up loan amount eligibility EMI amount x tenure paid x multiplier (1.5) 12,000 x 24 x 1.5=Rs 4,32,000
Total loan eligibilityRs 1,12,000+Rs 4,32,000=Rs 5,44,000

More funding from NBFCs

Non-banking financial companies (NBFCs) provide more loan compared to banks in respect of top-up schemes. For example, Tata Capital can give you a funding of nearly 120% against your car provided if you have maintained a clean track record of EMIs for 18 months. You can also get 100% funding on clean track record of EMIs for 12 months.

Who provide top-up loan against financed car?

There are lenders like State Bank of India, HDFC Bank, ICICI Bank, Tata Capital from where you can get top-up loan against financed car.

( Updated on : 21st October, 2016)

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