Given that loans are borrowed mostly for future investments, one can’t always plan their expenditure to the last penny. Your home renovation loan, for instance, may fail to account for the need of another round of plaster that wasn’t there in the beginning. And no one wants to be stuck in a situation with an expired loan amount and an unfinished job. Thankfully, such a case can be tackled today by what is known as a top-up loan.

Top-Up Loan: Whether You Should Avail It or Not

Top up loans explained

A top-up credit is a facility provided by financial institutions like banks and housing finance companies that allow people to borrow a certain amount of money over and above their Home Loan or any other loan. However, people with a Home Loan to their name can’t avail a top-up loan without meeting the eligibility criteria of the lenders.

The repayment ability and past repayment records of Home Loan are among the primary considerations. If borrowers’ credit report speaks in their favour, the institutions do sanction a Home Loan Top Up, also charging a small processing fee. In some cases, banks have also been known to waive the processing fee.

While primarily a Top-up on a Home Loan or any other loan you may already be repaying, it can also be used for a variety of purposes other than construction or modification of home. Meeting the costs of a family wedding, education expenses, and medical expenses can also be covered under it. There is no bar on utilising funds from this loan for any professional or personal needs that one may have. The only condition is that it cannot be sanctioned for any speculative activity.

A top up loan frees the applicant from going through all the formalities involved once again. It helps save time and effort by making your existing documentation and collateral as the basis for the additional amount required as well. While minimal paperwork is still required, it is negligible compared to the process one has to go through the first time over.

When considering whether a top-up loan should be availed or not, it is necessary to look at their pros and cons to make an informed decision. Here are the two sides to help you judge their usefulness:


  • No restrictions on spending: As stated, top up loans can be used for any practical purpose. Apart from any speculative use, they can be used for whatever might deem them fit for. Be it home renovation, buying a parking spot, or purchasing home furniture, a top-up loan is always the answer.
  • Speedy process: Since documentation and verification involved in top-up loans are minimal, they can be approved quickly and easily. Your ongoing relationship with the lender and repayment track record speak in your favour. Processing time for the top up loans can be as low as 2 to 3 days.
  • Lower interest rate: While this factor varies from one financial institution to the other, top up loans are provided at interest rates ranging from 11-13%. Comparatively, the interest rate on personal loans can go as high as 22%.
  • No collateral required: An existing loan customer can avail a top-up loan without providing any additional security or guarantee to the lending financial institution.


  • Applicable only for existing customers: People with an ongoing loan at some other institution can’t apply for a top-up loan, nor can people who have settled their loan with the bank or the lender. One needs to be an existing customer to avail the loan, and even then, poor track record can hamper your chances of being approved for it.
  • Restrictions on usage: Top up credits can be used for any purpose but some banks offer them at a lower rate of interest if it is used for extension or improvement in the home. Using it for any other purpose may incur a higher rate of interest.
  • Dependency on EMIs (Equated Monthly Instalments) paid on original loan: A top-up loan may depend on the original loan in more ways than one. For instance, it may be available to a person only after a specific number of original loan EMIs have been repaid by him or her. Similarly, the amount of loan sanctioned may also depend upon the number of EMIs sanctioned.
  • Pre-payment penalty: In case you decide to pre-pay the loan, you may face a penalty as high as 4% in some cases.

Also Read: Home Loan Top-up: What are the Benefits and How to Get it

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