What is a Loan Top Up?
December 30, 2022

A Loan Top-Up is a common terminology in the banking industry referring to an additional sum added to a pre-existing loan, similar to an extra topping added to a pizza or refills to a glass of Coke the base remains the same but with an enhanced value.

Individuals look to a previous source as a suitable option rather than starting a new relationship. Dealing with a known Bank or NBFC gives the applicant a sense of comfort in applying for additional funds as a Top Up when required.

Usage of Funds Received via a Top-up

A Personal loan: Funds received as a Top-up to a Personal Loan can be used for personal expenditures such as Family vacations, Wedding expenses, educational expenses, and medical usage or emergencies.

A Home Loan: A Top-up to an existing Home Loan is sanctioned for registration of the property, home renovation, expenses for additional construction in the residential premises, and maintenance expenses.

Who can Apply for A Top-Up Loan?

Banks and NBFC usually give a gap period of three to six months before sanctioning a Top-up. This is more so with first-time loan seekers, confirming if the applicant conducts the loan per the agreement terms.

Lenders are keen to retain good customers who seek a Top-up to their existing loan, but only if eligibility criteria are met.

• Individuals with an existing loan are eligible to apply for Top-Up if the EMI is being paid on time; the successful payment record gives a sense of confidence to the lender that the loan will be repaid without delays. The request may be denied if there are bounces or delays in the repayment track.

• The applicant’s obligations will be considered before calculating the eligibility for the Top Up; these include existing loans, credit card dues, and regular monthly outgoings.The income must be sufficient to afford the expenses and pay the additional EMI amount.

• The CIBIL Score of the applicant must be above the required benchmark the CIBIL records are checked to ascertain the number of loans and credit cards being held.The repayment record for all credit taken should be a timely one. If the lender feels that the applicant has recently taken too much credit, the applicant can be declined.

• The applicant’s employer must feature in the approved list of companies issued by the Bank. If the applicant has changed employment, the application for a Top-up will be viewed per the applicant’s current status and must meet the eligibility criteria.

The Pros and Cons of a Top-Up loan

A relationship with an existing lender may prompt customers to apply for extra funds when required. A Top-Up option though convenient and suitable in some circumstances, may not work well in others.

A Top-Up Loan is quicker as the lender is familiar with the applicant’s details and can expedite the process. Therefore, a Top Up is advantageous if there is an urgent requirement of funds.

With a top to the existing loan, the applicant has the benefit of paying a single installment for the entire amount. Individuals preferring to manage a single EMI can Top Up an existing personal loan and not apply for an additional/parallel loan.

If the existing EMI is a strain on the purse, an additional loan may add to the expenses. Applicants can request an extension of the repayment tenure with an affordable EMI post-approval of the Top-Up.

With a Top-Up,customers can avail of the benefits of a discounted interest rate applied to the principal balance of the existing loan and the added amount approved post a Top-up.

Applying For a Top Up Loan will not always serve well; below are the scenarios under which it might not be the best option.

As most Banks have a lock-in period of 12 months, therefore, with a top Up, the applicant can repay the loan a year after receiving the Top Up amount;thus, the choice for prepaying the loan becomes restricted.

Applying for a Top Up early in the Tenure is a better option as the interest quotient has been majorly repaid after the tenure has crossed halfway. With the loan being restructured,interest will be levied as per a new repaymenttenure on the principal balance of the previous loan and the fresh amount sanctioned.

The current interest rate should be confirmed before applying for a Top Up. If the existing loan is running at a lower rate than what is being offered with a Top Up it is better to apply for a parallel loan rather than going in for a Top Up.

Consider all the options before deciding whether a parallel loan will serve the need better than restructuring the existing loan with a Top Up.

How Does The Top-Up Process Loan Work?

A Top loan is similar to a Balance Transfer which is done internally. The existing loan will be foreclosed, and a new Loan account will be generated with the principal balance of the current loan and the additional amount approved.A new EMI will now be presented to the Bank account for the tenure approved.

The process steps followed for a Personal loan Top Up are similar to those of a Fresh Personal loan.

The applicant needs to apply with the updated documents giving the present residence and employer details. The request for a Top Up can be declined if the applicant’s current profile and CIBIL history are unsuitable. Running a previous Loan successfully is not reason enough to get a Top Up when needed.

Lenders willingly offer a Top Up to existing personal and Home Loan customers who successfully run their present loans with an on-time repayment record. It is a win-win situation for the lender who is confident of funds being repaid with interest and for the applicant.

First-time credit seekers must build a good credit score before being eligible for a Top-Up loan. Existing customers are issued for a Top Up as often as desired as long as they hold a steady income and a profile that the bank approves.
Central Banks approving Top Up Loan are the Prime Lenders today.

HDFC Bank
ICICI Bank
Axis Bank
Kotak Bank
Yes Bank

Keep the Top Up option but survey the market for other offers we at YourLoanAdvisors are there to help our esteemed customers make the best decision for their financial needs.


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