Is a personal loan top-up right for you? Benefits and eligibility explained | Mint

When you are running low or have completely run out of internet data on your mobile, you can easily do a top-up. A top-up gives an instant boost to the internet data. Similarly, if you have taken a personal loan and need more funds, you can go for a personal loan top-up. In this article, we will understand what a personal loan top-up is, its features and benefits, eligibility criteria, and should you go for it.

What is a personal loan top-up?

A personal loan top-up is an additional loan that you can get on your existing personal loan. The basis of a top-up loan is the timely EMI payments of the existing personal loan.

For example, Ajay has taken a Rs. 1 lakh personal loan with an 18 months tenure to renovate his existing kitchen into a modular kitchen. Ajay has been paying his EMIs regularly every month on time. After 8 months, he needs Rs. 1 lakh more to renovate his living room. In this case, he can go for a personal loan top-up.

Top-up loans are also given for some other types of loans, such as home loans. A personal loan top-up works in the same manner as the original personal loan. You don’t need to disclose the end use of the funds to the financial organisation. The top-up loan amount can be used for any purpose as long as it is legally allowed. However, the use of top-up loan funds should be avoided for speculative activities like share trading, etc.

Some financial organisations send pre-approved top-up loan offers to customers who meet the required eligibility criteria. These offers may be sent through email, SMS, WhatsApp, net banking banners, etc.

Personal loan top-up benefits the borrower as well as the bank. The bank benefits as they get to extend more credit to an existing customer who has been paying the existing loan EMIs on time. The borrower benefits by getting quick access to additional funds for fulfilling their financial needs.

Benefits of top-up loans

The top-up loans come with a number of features and benefits. Some of these include the following.

1. Quick approval: The approval and disbursal of a personal loan top-up is quicker than other loans. The financial institution already has your details like KYC, income documents, credit score, etc. They also have your repayment track record of the existing personal loan. Having access to most of the required information makes the top-up loan processing faster.
2. No to low documentation: The top-up loan is over and above an existing personal loan, so it requires low to no documentation. The financial institution already has all or most of the documents required to process the top-up loan application.
3. Attractive interest rates: As the borrower has been diligently paying the existing loan EMIs, the personal loan top-up may be offered on attractive terms. These can include a discounted or complete waiver of processing fees. The interest rate may be lower than the original personal loan.
4. Usage of funds: The borrower doesn’t need to specify the end usage of the personal loan top-up funds to the bank. The funds can be used for a wide range of purposes like medical or any other emergency, education purposes, home renovation, buying the latest gadget or consumer durable, starting a business, celebrating a family function, enjoying a family vacation, debt consolidation, etc.
5. Flexible repayment options: The top-up loan EMI repayment date and tenure can differ from the original personal loan. Some financial institutions allow the top-up loan tenure to go beyond the original loan tenure. The personal loan top-up tenure may go up to a maximum of 5 to 7 years.
6. No requirement for a guarantor: Usually, a personal loan top-up doesn’t require a guarantor. The borrower has been making timely EMI payments for the existing loan, so they have already proved their credibility. Similarly, there will be no need for a co-applicant. Also, as the personal loan top-up is an unsecured loan, there is no need for collateral.
7. Debt consolidation: A personal loan top-up is a good way to consolidate multiple personal loans and outstanding on multiple credit cards into a single loan. Rather than paying multiple EMIs on different dates, consolidating them into a single EMI saves time and effort. Also, when you clear credit card outstanding with a personal loan top-up, you save substantial money on the high interest rate charged on credit cards.

As seen in the above section, personal loan top-ups have several features and benefits. However, they are limited to existing borrowers of the bank. Also, there is a risk of over-borrowing with personal loan top-ups.

Personal loan top-up eligibility criteria

Now that we understand the many features and benefits of a personal loan top-up, let us look at the eligibility criteria.

Should you go for a personal loan top-up?

For a personal loan top-up, there is low to no documentation, a guarantor/co-applicant is not required, interest rates are competitive, and the approval and disbursement are quick. Hence, if you have an existing personal loan running and need more funds, it is a good idea to approach the same bank with a personal loan top-up request.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.