When Should You Take a Top-up Personal Loan?

Last Updated : Nov. 16, 2020, 8:39 p.m.

Paying a personal loan but want extra funds to meet your purposes? Don’t worry, you can get a top-up on your existing personal loan amount. Similar to a personal loan, a top-up loan is flexible and can be used for weddings, vacations, medical emergencies, home renovation and more. But what should you look for in a Top-up Personal Loan before signing the deal? Read this post that tells you the same.

Compare Top-up Personal Loan Interest Rates

A Top-up personal loan deal is when the interest rate is lower. Do you know why? Because it helps decrease the EMI and makes your loan payment easier and affordable. A lower interest rate further translates into a much lower outgo of interest than what would be the case otherwise. So check the personal loan interest rate for a top-up amount before applying for the said credit option.

Check the Processing Fee

Same as a personal loan, lenders debit a processing fee in a top-up personal loan too. So, the greater the processing fee, the lesser will be the loan disbursal amount and vice versa. Needless to say, you should choose the loan with a minimum processing fee. So check the Top-up personal loan processing fee of your lender when you are proceeding for a Top-up on your existing personal loan .

Check for the Flexible Repayment Terms towards a Top-up Personal Loan

Do you know there are two different types of methods to pay your Top-up personal loan EMI? if you don’t, read the below procedure. As you know the top-up loan will be given on your existing personal loan. So, the top-up personal loan will get added to the running balance. As a result, there will be a consolidated EMI. But banks also offer the option to keep the existing personal loan and top-up loan separate. To have a better understanding, check out the below example.

Example – Annirudh has borrowed a personal loan of INR 5 lakh for 4 years at an interest rate of 15% two years ago. According to which, Annirudh has been paying an EMI of INR 13,915, which will lead to a total interest payment of INR 1,67,938. The outstanding balance in the second year has come down to INR 2,86,993. Until now, Annirudh has paid interest of INR 1,20,963. So how much will he end up paying if he takes a top-up personal loan of INR 2 lakh?. Check out the repayment schedule of a consolidated and separate Top-up loan structure.

When Both Personal Loans Are Consolidated

In a consolidated repayment structure, the outstanding balance of INR 2,86,993 will be added to INR 2 lakh (top-up amount). This gives a sum of INR 4,86,993 over which an interest rate of 15% for 2 years will apply (Two years are left for the existing personal loan). Doing so leads to an EMI of INR 23,613, which will incur in a total interest payment worth INR 79,711 over 2 years. The overall interest payment would thus be INR 2,00,674 (1,20,963+79,711).

When Repayment is Done Separately

An existing Personal Loan of INR 5 lakh will have EMI of INR 13,915 and total interest payment worth INR 1,67,938 as pointed above.

Top-up Personal Loan of INR 2 Lakh for 2 Years (Assuming the interest rate is 12% on the top-up loan amount)

In this case, the EMI and interest payable amount to INR 9,415 and INR 25,953, respectively, over 2 years. The total EMI, in this case, will be INR 23,330, while the interest payment comes as INR 72,928. If we add the interest amount of INR 1,67,938 to it, the total interest amount comes as INR 2,40,866.

So a consolidated loan option seems a better option for Annirudh in light of his repayment details. This is despite a lower interest rate on the top-up loan amonnt. But if Annirudh can pay extra EMI and get the top-up for just a year, the total interest payment in a separate loan structure comes as INR 1,81,175 (1,67,938 for an existing personal loan and INR 13,237 for a top-up loan), which is around INR 19,499 (2,00,674-1,81,175) lower compared to a consolidated payment structure. The total EMI, in this case, will be INR 31,685 (13,915 for existing personal loan + 17,770 for top-up loan amount).

List of Banks Providing Top-up Personal Loans in India

After knowing what to look for in a top-up personal loan, you should pay attention to the offers presently available for you in this regard.