Which should be taken – Top up Loans or Personal Loans 2023

Which should be taken: Top-up Loans or Personal Loans. Availability of easy credit and lower interest rates has increased competition in the banking industry banks are flocking to give loans to increase profitability. Banks and many non-banking financial corporations have started a new category of loans called “Top Up” loans. In “Top Up” loans borrowers can avail loans upon former loans.

“Top-up” loans get activated by 9 to 18 months after the sanctioning of original loan. The banks check previous records like CIBIL score, job stability, overdue on EMI’s before authorising “Top Up” loans to the borrower. Now check more details about “Which should be taken – Top-up Loans or Personal Loans” from below…..

Which should be taken – Top up Loans or Personal Loans

Features of Top Up Loans

Assume an individual has a bank loan of Rs. 50 lacs, with an unsettled amount of Rs. 15 lacs. The borrower is eligible to and can avail a top up loan of up to 60% of original loan value. Therefore 60 % of Rs.50 lacs is Rs.30 lacs. Now Rs. 15 lacs, which is the outstanding amount is deducted from eligible amount of Rs.30 lacs. Hence, Rs.15 lacs is the amount which a borrower can borrow as a top up loan. State Bank of India and Citi Bank provide top up loans up to Rs. 5 Cr for 15 years. Interest on “Top Up” loans is usually 1% to 2% more than previous rates and stretch for a tenure of usually for up to 10 years.

However it must be understood that “Top Up” loans are not for investing in high risk securities and the lender might reject the additional loan at his discretion. The lender might also wave off fee if the borrower has timely paid his dues but is usually .75% of the loan amount. The purpose of “Top Up” loan might also be check by the lender before approval. The loan usually get disbursed within 48 to 60 hours.

However, borrowers might enjoy tax benefits under section 80C and section 24 if the loan is used to buy a house. Also the borrower does need a security (loan against property) to avail top up loans. “Top-up” loans are generally used for paying education loans, renovating homes or payment of medical fees in such cases tax exemption cannot be availed.

Advantages and Disadvantages of Top Up loans:

Other than speculation “Top up” loans can be used to pay any loan or used for any other purposes. However sometimes banks may require borrower to specify the purpose. The borrower can enjoy tax benefits if the loan is used to buy a house. “Top up” loans have easier and hassle free processing than other loans, however they can only be availed by continuing borrowers only. Also the banks does not require the borrower to mortgage any other asset. This might lead to some non-performing asset if not monitored properly.


Top up loans might emerge as a better alternative to personal loans due to their swift nature and ease of process. The borrower also pays less interest in Top up loans than two different loans. Since the interest rates on personal loans is higher, top up loans are better. Many banks are willing to provide loans at rates similar to previous ongoing loans to attract customers into applying for top up loans. Since it is a fairly new category of loan and has yet to stand test of time. However industry experts believe top up loans are the future of personal loans.

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