What is a Top-Up Loan? What are the Benefits?
A financial emergency can come at any stage, leaving you highly vulnerable. However, the situation is particularly grave when servicing a home loan. This is the period when you require assistance in shouldering your responsibilities. A home top-up loan is one financial tool that can help you manage your situation.
If you are in a similar scenario and require financial assistance to cover additional costs in an emergency, continue reading.
What is a Top-Up Loan?
Financial institutions provide a top-up loan facility to existing customers, allowing them to borrow money in addition to their current house loan. As you are already a bank customer, it is a straightforward method for obtaining a loan without any documents.
A home top-up loan is a simple way to secure funds. The customer is already servicing a loan with the bank, and the lender has to increase the loan amount. The funds generated can be used for anything from purchasing furniture to constructing, renovating, or extending the property, children’s marriage, medical emergencies, etc.
What are the Benefits of a Home Top-Up Loan?
Some of the top-up loan benefits for a borrower are mentioned below.
Easy Approval
A top-up loan is simple, easy to get, and requires minimal paperwork. This is because the bank has already analyzed your creditworthiness. If you have been a customer for over a year, you will acquire a loan without documents because the lender has your records. However, your bank may require additional paperwork before sometimes extending the loan amount.
Eligibility
Any working person can benefit from a top-up loan irrespective of work profile. Everyone is eligible to use the service, whether you are a salaried employee in a government office, a private enterprise, or self-employed. However, not all applicants are eligible for a home top-up loan. A bank will grant you a loan after confirming your repayment capacity and track record. Banks will issue the funds after collecting a processing fee if the credit history is favorable.
Loan Tenure
Customers are granted top-up loans for the remaining term of their existing house loan or 10-20 years. However, it depends on the lender and varies accordingly.
Attractive Interest Rates
Top-up loans have low interest rates that are almost comparable to home loans. Moreover, these interest rates are typically lower than those paid on personal loans. Sometimes, your bank may waive specific fees/charges to make the deal more appealing.
Utilization
You can employ a top-up loan to modify or build your home or pay for personal needs such as your children’s school. You can also use the loan money for business purposes. However, the funds cannot be utilized for speculation.
Tax Benefit
Tax advantages on home top-up loans are available if the money is spent solely on your residential property’s development, repair, renovation, or expansion. Here, the maximum tax deduction permitted is Rs.30,000. The loan’s principal amount and interest portion will be tax-deductible if the additional funds are used to construct or purchase a new property. This is subject to the limitations imposed by Sections 80C and 24. (b) of the IT Act.
A top-up loan is a simple way of dealing with a financial emergency. Existing home loan customers will find the lending process quick and quick. Furthermore, you can apply for a balance transfer (BT) facility and a top-up option if you are not an existing bank customer. The documentation is often far more relaxed, and the interest rates are kept low to encourage clients to choose the top-up loan.
