Top-up Loan – Meaning, Eligibility, Benefits & How to apply for it

A loan offers swift access to funds to cover various expenses, such as buying a home, pursuing education, or handling medical bills. It allows you to manage your financial obligations without depleting your savings, and you can conveniently repay the loan through monthly instalments.

But what if your existing loan amount may no longer be enough to cover your obligations? What if you need more funds to pay for your expenses? If that's the case, you should apply for a top-up loan.

As evident from the name, a top-up loan is an additional loan available to borrowers above their existing mortgage and personal loans. Funds from this loan can be used to meet expenses without needing a second loan.

So, let's understand what is a top-up loan in this blog post. We will also shed light on the top-up loan eligibility criteria and walk you through the steps to avail of this facility.

What is Top-up Loan?

Financial institutions offer top-up loans to borrowers, allowing them to take an additional loan over and above their existing loan. Such facility is generally available with home and personal loans.

Since this type of loan is available only to existing borrowers, you do not need to go through extensive paperwork or pledge additional collateral.

Now, let's see a top-up loan's example to understand better how the facility works.

Suppose you avail a home loan of Rs 50 lakhs with a 10-year repayment tenure. After 5 years, your home needs an extension, estimated at Rs 15 lakhs. Given you have been regularly paying your EMIs, you can contact your lender and apply for a top-up home loan.

Benefits of a Top-Up Loan

Now that the top-up loan's meaning is clear let's explore some of its key benefits.

1. Multi-Purpose Loans

Once your account is credited with top-up funds, you can use the loan amount to settle your various financial obligations, be it personal or professional. There is no obligation to use the funds solely for a predefined expense.

2. Instant Disbursal

Financial institutions extend top-up loans only to their existing borrowers. In many cases, such loans are even pre-approved. As a result, the loan is sanctioned almost instantly, and funds are disbursed without delay.

3. Lower Interest Rates

Top-up loan interest rates are comparatively lower than the other unsecured financing instruments. So, if you plan to settle any big-ticket expense with your credit card or by availing of another personal loan, consider applying for a top-up loan.

Documents required for top-up loan

Since a top-up loan is generally taken above an existing loan, most lenders don't require you to submit any documents as the verification has already been done at the time of the existing loan. Further, most lenders also offer pre-approved instant top-up personal loans to their customers. 

Reasons why you should apply for a top-up loan

1. Easy application process

Since top-up loans are typically offered to existing borrowers with a good repayment history, the application process is usually faster and less cumbersome than new loans.

2. Higher loan amount

You can borrow a substantial amount based on your existing loan's outstanding balance and repayment history. This is ideal for funding large expenses without applying for a new loan.

3. Alternative to other debt options

Top-up loans can be a better alternative to high-interest debt options like credit cards, helping you avoid higher costs and manage finances prudently.

4. Meet emergency requirements

Top-up loans can be a quick and accessible solution to cover unexpected costs or emergencies, such as medical costs, offering immediate financial assistance. 

5. Improved credit score

Successfully managing a top-up loan can positively impact your credit score, demonstrating your ability to make timely loan repayments.

How to Apply for a Top-Up Loan?

To apply for a top-up loan, contact your lender to see if they offer top-up loans to existing borrowers. If they do not provide such a facility, your next step should be to opt for a loan balance transfer.

The balance transfer facility lets you transfer your outstanding loan balance from your current lender to a new lender. So, compare top-up options from different lenders and get your balance transferred to the one that suits your needs.

If you borrowed a home loan or a personal loan from Tata Capital or got your balance transferred, you can apply for a top-up loan online. Just follow these steps:

1. Visit the Tata Capital website.

2. Click the Apply button. You'll be redirected to a login page.

3. Select the Existing Customer option, enter your mobile number, and enter the OTP to log in.

4. Tata Capital offers pre-approved top-up loans. So, if you are eligible for a loan, you will see your eligible top-up loan amount. Then, you can proceed to apply for the loan.

4. Provide your personal details, employment status, and financial information.

5. Mention the loan amount you plan to borrow.

7. Provide details of your existing loan.

8. Provide documents like your address proof, identity proof, income proof, salary slips, and bank account statement.

Once your application is complete, Tata Capital will review it. The top-up loan amount will be credited to your bank account upon approval.

What Is a Top-Up Loan Eligibility Criteria?

Top-up loan eligibility criteria vary depending on the lender. However, most lenders will check the following details before approving your loan application.

1. Existing Loan: To avail of a top-up loan from a lender, you must have an existing loan with them.

2. CIBIL Score: You must also have a high credit score (750 or above) to be eligible for a top-up loan.

3. Repayment History: A healthy record of repaying your loans is also necessary to get your top-up loan approved. So, make sure you have no outstanding loans or defaults on EMIs.

4. Income: Whether you are a salaried employee or a self-employed individual, you must have a stable source of income. Lenders use it to determine your ability to repay the loan.

How to Calculate EMI for Your Top-Up Loan?

Like any other loan, EMI for a top-up loan depends on the loan amount, interest rate, and repayment tenure.

Prevailing interest rates in the lending market decide interest on your top-up loan. So, top-up loan interest rates can either be higher or lower than the interest rate on your previous loan.

As for the loan amount and repayment, it depends on your existing home loan amount, its repayment tenure, and your credit score. Besides, lenders also calculate the Fixed Obligation to Income ratio to assess your ability to repay a loan.

You can contact your lender to get these details and calculate your loan's EMI. You can also use an online EMI calculator to get an idea of the amount you must pay as a monthly instalment towards settling your loan.

Final Words

A top-up loan can be a lifesaver if you have already borrowed a loan and need more funds to settle your immediate financial obligations.

Visit the Tata Capital Moneyfy website to know more, or download the Moneyfy App. 

FAQs

What is the maximum top-up loan amount that I can avail?

The maximum top-up loan amount typically depends on the outstanding balance of your existing loan and the lender's eligibility criteria. Ideally, the top-up loan amount cannot exceed the overall loan amount.

What is the maximum tenure for a top-up loan?

The maximum tenure for a top-up loan can vary depending on the lender's policies and the borrower's credit profile, repayment history, etc.

Can I apply for a top-up loan if I have already availed of three loans?

While you can apply for a top-up loan, the approval will depend on the lender's policies and evaluation of the borrower's repayment capacity.