How top up loans offered on home loan can be a better idea to meet any exigency?

Planning

oi-Roshni

By Roshni Agarwal

Published: Monday, March 31, 2014, 11:33 [IST]

In an emergency, it is a normal tendency to pay not much heed and bet on the credit product that is available easily as well as readily. Nontheless, there are few aspects if considered even in such times shall serve you well in the long run. Nonetheless, banks and financial situation, taking heed of such an unforeseen condition offer some such products including personal loan, credit on the credit card etc. In case of a short term financial need, loan against FD, loan against gold etc. are some good option. While a top-up loan can be availed to meet any long term financial need.

The top-up loan for meeting any of the financial liability can be taken by the home loan borrower from the current financier, provided the bank should be offering the same. It is a better tool as it can be taken to meet any of the situation but an undertaking to the effect; as wherein the money shall be deployed needs to be provided to the financial institution. Though the extended loan amount cannot be used for any speculative or illicit purposes.

Eligibility: You can avail of such a loan after the bank sees you as a creditworthy individual capable of repaying the loan amount. So, such a loan is generally approved and disbursed by the bank after you as a home loan borrower have serviced your debt obligation for some stipulated time frame, the scope of which varies from banks to banks.

Tenure: Generally taken for a larger sum, tenure of the loan can either be lower or can be the same as the tenure of home loan.

Rate of interest: Such a loan involves a lower cost as interest rate is anyway between 10-13% in contrast to a higher interest rate charged on personal loans. The top-up is treated as a second loan and is charged a slightly higher interest than the existing home loan (usually 1-1.5%), and you need to pay a separate processing fee (same as that of the home loan).

It must be remember though that such a loan comes at a slightly higher cost in comparison to the home loan interest rate i.e. higher by 1-1.5%.

Amount of loan that can be drawn under the scheme: Under the top-up loan scheme, several factors determine the amount which your lender shall offer. Such considerations mainly include, value of the collateral that in the case is the property, outstanding loan amount and loan repayment capacity of the borrower. For the purpose, banks also adhere to some maximum limit which can be disbursed as a top up loan.

Advantages of a top-up loan:

1. With lower interest rates, such a loan turns out to be better than the otherwise expensive personal that cost upto 20%.

2. Easy lending under the scheme: As you already have a home loan account with the bank, no tedious documentation process is required to get the top-up loan facility.

3. You can also exchange your education loan or a car loan needs with a top-up loan on the existing home as it serves you better with a lower rate of interest.

Tax implication of a top-up loan

Unlike the housing loan that comes with a tax-relief on the interest payment, top-up loan availed on the home is loan is treated as a separate borrowing which do not provide any tax relief or rebate.

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