After purchasing your dream house, you may need additional funds for renovating the space or meeting other financial requirements. This is where a home loan top-up or a personal loan can come to your rescue. A homeloan top-up allows home loan borrowers to avail extra funds over and above their existing loan. The loan amount availed through a top-up loan can be used for various purposes such as taking care of medical expenses, tuition fees, home extension, restoration, etc.
While a personal loan too can fulfil your monetary needs, opting for a top-up loan would be a cost-effective option.
Read below the key differences between a personal loan and a top-up loan.
Home Loan Top-Up vs. Personal Loan
- Interest rate
The interest rate charged on a top-up loan is lower as compared to personal loan interest rate. This is because personal loans are unsecured loans. On the other hand, in case of a home loan top-up, your property acts as collateral, and hence the interest rate is low. By opting for a top-up loan instead of a personal loan, you will be spending less towards the interest outgo. Moreover, an attractive interest rate would translate to lower EMIs, thereby reducing your repayment burden.
Personal loans are offered fortenure of 1 to 5 years. On the other hand, top-up loans have comparatively longer tenures. You can choose a repayment tenure that suits your repayment capacity. Keep in mind that, by opting for a shorter repayment tenure and closing your debt sooner, you can save on the interest pay-out.
- Tax benefits
If you utilize the funds availed through a top-up loan for home renovations, construction, extension, etc., you can avail tax benefits up to a certain amount. Such tax benefits may not be available on personal loans except for ones with specific end use such as home renovation or improvement. If you wish to opt for a personal loan, ensure to check with your lender about the tax benefits beforehand.
- Processing time
In case of a home loan top-up, the processing time is very low, as the lenderwould havealready verified your documents and other necessary details while sanctioning your home loan. If you share a good equation with the lender and have a good repayment track of your home loan, your application for a top-up loan can be approved instantly.
On the other hand, the time taken to process a personal loan application is usually longer as the lender would have to obtain and verify your documents and other details such as credit score, existing debts, etc.
To sum it up, it can be safely said that home loan top-ups are a great alternative to personal loans. However, to make a well-informed decision, you can either seek the help of a financial expert or ask your lender for suggestions. Irrespective of which type of loan you settle for; you must read and understand the terms and conditions of the loan agreement carefully.