Just like other consumers, existing home loan borrowers also may have to avail additional credit facilities to finance big ticket spends like home improvement or renovation, car purchase, children’s higher education, etc, or to tackle financial exigencies. Sensing this need, home loan lenders started offering top-up home loans to the existing borrowers without any end-usage restrictions.
Here are 5 major benefits of availing a top up home loan vis a vis availing alternative options like a personal loan, loan against credit card, and car loan, among others:
Lower interest rate
The interest rates of personal loans generally range around 10%-24% p.a. based on the borrowers’ credit profile and other criteria. The interest rate of loan against credit card is usually a notch higher than those of personal loans available to a borrower from the same lender. However, in case of top-up home loans, the interest rate is generally the same or a notch higher than the interest rate of the underlying home loan. This makes top-up home loans one of the cheapest credit options for the existing home loan borrowers servicing home loans at lower interest rates.
No restriction on end usage of funds
Although top-up home loans can only be availed by the existing home loan borrowers, they do not come with any end usage restrictions except for speculative purposes. The absence of end usage restriction makes top-up home loans a great alternative to personal loans or loan against credit cards for the existing home loan borrowers.
Longer repayment tenure
The tenure of top-up home loans primarily depends upon the residual tenure of underlying home loans, with some lenders further capping the top up-up home loan tenure at 15 years. The repayment tenures of alternative credit options like loan against credit card and personal loan generally go up to 5 years, with some lenders offering personal loans with longer tenures of up to 7 years. Given that longer tenure leads to lower EMIs, opting for a top-up home loan can assist in reducing the EMI burden. Similarly, existing home loan borrowers seeking longer loan tenures to finance their car purchase can also consider availing top-up home loans.
Higher loan amount
In case of top-up home loans, the eligible loan amount sanctioned by lenders is usually the difference between the originally sanctioned home loan amount and the outstanding loan amount. As far as personal loan is concerned, the loan amount can range between Rs 50,000 and Rs 40 lakh based upon the borrower’s income and repayment capacity. The loan amount in case of a loan against credit cards is generally a proportion of the credit card holder’s credit limit. However, some card issuers tend to offer loans against credit card over and above the credit card holder’s credit limit.
Hence, the chances of getting a higher loan amount are much higher in case of top-up home loans, especially for those who have already repaid a significant proportion of the original home loan amount and have displayed disciplined repayment history.
Quick processing and documentation
Lenders usually take 1-2 weeks to disburse top-up home loans. Loan against credit cards are usually disbursed instantly or within a few hours of submitting the loan application whereas personal loans are disbursed within 2-7 days. Some lenders also claim to offer pre-approved personal loans with faster disbursals. Hence, personal loans or loan against credit card would suit those seeking quicker loan disbursals.
However, some lenders have started offering pre-approved instant top-up home loans wherein they claim to disburse the loan amount within the same day of making the loan application. Thus, those having existing home loans with lenders offering instant top-up home loans can consider top-up home loans to avail quick finance.
(By Ratan Chaudhary, Head of Home Loans, Paisabazaar.com)