Top-up vs. Personal Loan: Which is Right for you?

Top-up vs. Personal Loan: Which is Right for you?

Whether you are facing financial hardship or want to purchase something above your paycheck, loans are monetary blessings for both. But if you have an active loan and want to gather more amount of money, should you go for a different personal loan or top-up the existing loan? 

 Before you make that critical decision, here are some of the things you need to know about top up loans and personal loans. Before that, let’s look at what precisely a top-up loan is. 

What Is a Top-up Loan? 

A top-up loan is a facility granted by financial lenders by which you can borrow money above your current home, auto, or personal loans. You can use a top-up loan renovating your house, funding personal expenses like a child’s education, marriage, debt consolidation, and business expansion. 

Top-up vs Personal Loan: How Are They Different? 

Interest Rates 

Generally, top-up loans have a lower interest rate as compared to personal loans. This is because top-up loans are granted above your existing loans, which will have your house or automobile as collateral – hence lesser the risk for the lender. 

While, on average, the interest rate for personal loans is around 16%, top-up loans would be charged at a rate of 10%. However, to be eligible for top-up loans, you must have a reliable repayment history. 

Eligibility Processing 

If not for instant personal loans, financial institutions may take time to process your application. They have to check your personal loan eligibility by analyzing your credit score, repayment history, and income status. But if you apply for a top-up loan, the lender will already have your details and so the processing time will be significantly reduced. 

Disbursal Period 

If you’re in urgent need of money, then an instant personal loan will be a better option as you may get the amount within a few hours or so. But, in the case of top-up loans, the financial institution has to follow a set of procedures before issuing the amount. However, if you want money for a planned requirement such as educational or marriage expenses, top-up loans are better. 


As previously mentioned, the documentation for top-up loans will be minimal as the financial institution already has all the documents they will require. On the contrary, if you’re applying for a new personal loan, you will have to submit all the documents, all over again, and wait for its verification. 

Tax Benefits 

If you avail of a top-up loan for specific reasons such as home renovation or expansion, you will most likely be eligible for tax benefits up to a certain amount. But if you use a personal loan to renovate your house, the chances are slim that you will get any tax benefits. However, to be on the safer side, communicate with your financial lender for confirmation about tax benefits. 

Pre-Payment Penalties 

Fortunately, top-up home loans don’t attract any pre-payment penalties as per the mandate issued by the Reserve Bank of India. This means that, if you acquire enough funds to close your top-up loan before the stipulated tenure, you wouldn’t have to pay a penny as a penalty. However, in the case of personal loans, you may have to pay pre-payment penalty charges up to 4% of the loan amount. 


When availing of a personal loan, your maximum loan tenure may extend to up to 7 years – meaning, you’ll have to repay the loan by then. However, if you’re availing a top-up loan for your home loan, you can extend the loan tenure of your home loan, which will be 20 -25 years in general. 

In conclusion

These are some of the striking benefits that make top-up loans a better option than personal loans. Visit lenders website to apply online for a top-up loan and get quick approval with minimum documentation. 


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