Choosing The Correct Loan – Personal Loan Or Top-Up?

Debt or what usually is referred to as a “loan” plays a crucial role in your financial life. Loans endow you with the means to not just manage your financial plans like purchasing a home, 4-wheeler, or running a business but even come in handy when you require funds for educational purposes, leisure activities or medical expenses. However, as much as credit options serve as a boost in your journey towards your financial goals, it is crucial to exercise caution when selecting the type of debt, ensuring that it is the correct match for your needs. 

Two such credit options, which are often availed by individuals are top-up and personal loans. Opting for a personal loan is considered a good option owing to its unsecured nature, which allows you to take up instant cash. A reliable income source and an excellent credit score even assure the possibility of obtaining a personal loan at a lower rate of interest. For instance, suppose you are eyeing to open a Bajaj Finserv personal loan and hold a good score of 750 and above, then you have a high chance of availing the Bajaj personal loan interest rate. Post submitting the personal loan application, if the proceeds disbursal is delayed, then you can visit the Bajaj online site to check your Bajaj Finserv personal loan status. 

In contrast, top-up loans are obtained in addition to the previously prevailing loan, usually over and above the prevailing home loan. Based on your prevailing loan, a top-up home loan can either be unsecured or secured. 

Personal loan – Know this loan in detail – 

A personal loan is a type of unsecured credit option that lenders offer to their borrowers looking out to finance their own requirements. Your credit score, income and repayment past record are used by the financial institutions to assess your loan eligibility. Since the start of online digital lenders, it has become very simple to access personal loans.

All you require doing is filling out the online personal loan application form. Once done, attach the required personal loan documents for assessment and wait for approval. After the lender assesses and accepts your personal loan documents, the loan proceeds get transferred to your bank account instantly. With various financial institutions, the approval process for personal loans is hassle-free, convenient and needs minimal documentation. 

Also Check: Bajaj Finserv Personal Loan Status

There are zero restrictions on personal loan end usage. Unlike home loans and business loans, personal loans can simply be used for meeting any goal and meeting financial requirements. You can use the online personal loan to pay for a vacation abroad, purchase new furniture, complete home renovation, pay for healthcare exigencies, etc. 

Top-up loan – Know this loan in detail

A top-up loan refers to a loan availed over an ongoing and existing loan. The existing loan can be a home loan, personal loan and even business loan. There is a myth that the top-up credit option is available just on the prevailing home loan. That is not correct, if your bank has a top-up loan option available, they may be taken on distinct loan types. Based on the underlying credit option, top-up credit may be unsecured or secured in nature. 

For instance, if your prevailing credit is security based, the top-up credit might be provided as a per cent of the collateral’s value. There can be specific stipulations for availing a top-up credit. For instance, the borrower must have completed a specific number of loan EMI repayments on the underlying credit before qualifying for a top-up. 

Personal loan vs. top-up loan – which option must you go for?

Let’s discuss a few key attributes that make personal loans as well as top-up credit different from one another. 

Borrowing source

Personal loan 

Any financial institution will offer you a personal loan option anytime if you meet the loan eligibility parameter and can submit the required loan documents. 

Top up loan

This credit option can be taken up just over your outstanding credit from the same lender. If an individual is looking to take up a top-up loan from another lender, then they require transferring their entire outstanding to a new lender. 

Repayment tenure

Personal loan 

The repayment tenure of a personal loan is generally up to five years. 

Top up loan

The repayment tenure of a top-up loan is flexible and is usually aligned with the repayment tenure of existing credit. Thus, in the case your prevailing loan is long-term in nature, the rest of the loan tenure is usually fixed as the repayment tenure for a top-up loan. 

Rate of interest

Personal loan 

The rate of interest for personal loans differs based on the lenders. The rate levied on your loan even is based on parameters like employment details, income, credit score, age, etc. 

Top up loan

A top-up loan’s rate of interest is based on the underlying prevailing loan. The interest levied on the top-up loan is generally higher by 0.50 per cent or more than the base loan. For instance, if the business loan rate equals 15 per cent, then a top-up loan on the loan would have a rate of interest of 15.50 per cent per annum or even more. 

Processing time period as well as accessibility

Personal loan

Personal loan processing takes a while as the lender runs a considerable background check, which ranges anywhere from authenticating the personal loan documents, and past loan repayment records, to credit score, age, income source stability, and others. Generally, an individual with no default is preferred by lenders when providing a personal loan. 

Top up loan 

The time of processing for a top-up loan is usually less as the lender holds your documents already. Generally, a periodic EMI-paying individual is preferred by the lender for the top-up. 

Maximum loan proceeds

Personal loan

The personal loan proceeds a borrower can take up differs from one lender to another according to their limit. But the parameters like income, credit score, employer and other important eligibility criteria also have an impact on the loan proceeds approved. 

Top up loan

A top-up credit can be taken up as a fixed per cent of the previous value of the loan. This stipulation can differ across lenders and kinds of existing loan options.

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