A person has already taken a private mortgage and is paying the common EMIs. They now want extra money for an emergency. In such a state of affairs, the person has two choices. They will both go for a top-up mortgage or a brand new private mortgage.
On this article, we are going to perceive what a top-up mortgage is, the distinction between a top-up mortgage and a brand new private mortgage, and which one a person ought to go for.
What’s a top-up mortgage?
A top-up mortgage is a credit score facility supplied by banks and NBFCs that permits present debtors to borrow an extra quantity on high of their present mortgage. The highest-up mortgage facility is made obtainable to debtors making well timed fee of EMIs on the prevailing mortgage. The financial institution/NBFC might make the top-up mortgage facility obtainable after the well timed fee of a specified variety of EMIs on the prevailing mortgage.
For instance, Ajay took a Rs. 50,000 private mortgage for a 2-year tenure to get his home painted. After 1 yr, he needs to purchase a settee set and wishes further funds of Rs. 30,000. He approaches his present financial institution, which presents a top-up mortgage of Rs. 30,000 for a tenure of 1 yr. Ajay avails the top-up mortgage.
Options and advantages of a top-up mortgage
The options and advantages of a top-up mortgage embrace the next.
Minimal documentation: You’re taking a top-up mortgage from a financial institution/NBFC with whom you could have an present working private mortgage. They’ve already collected all of the KYC and monetary paperwork on the time of processing the private mortgage utility. Therefore, for the top-up mortgage, the documentation shall be minimal.
Sooner processing: When processing the private mortgage, the financial institution/NBFC has already accomplished the KYC test, credit score rating test, dwelling/workplace verification, and many others. Therefore, the financial institution needn’t do the verification/checks once more on the time of processing the top-up mortgage utility. Thus, the top-up mortgage approval and disbursal are quicker than a brand new private mortgage utility.
Decrease rate of interest: You’ve proved your credibility to the financial institution/NBFC with well timed EMI funds of your present private mortgage. Therefore, contemplating your previous well timed reimbursement monitor document, the financial institution/NBFC might provide the top-up mortgage at a decrease rate of interest.
Private mortgage vs top-up mortgage
Now we have understood the fundamentals of a top-up mortgage. Allow us to now examine a brand new private mortgage with a top-up mortgage.
| Private mortgage | Prime-up mortgage |
|---|---|
| A person can take a private mortgage from any financial institution or NBFC. | A borrower can take a top-up mortgage from a financial institution or NBFC with whom they’ve an present private mortgage working. |
| A financial institution can provide a private mortgage to present and new clients. | A financial institution can provide a top-up mortgage to present clients solely. |
| A person can take a private mortgage at any time with none ready interval. | There could also be a ready interval (for instance, six months of well timed EMI fee on the prevailing private mortgage). The financial institution might analyse the borrower’s reimbursement monitor document earlier than making the top-up facility obtainable. |
| For a private mortgage, the borrower has to submit paperwork just like the duly stuffed utility kind, {photograph}, KYC paperwork, earnings paperwork, and many others. | Within the case of a top-up mortgage, many of the borrower’s data/paperwork are already obtainable with the financial institution. Therefore, the documentation is minimal. |
| The financial institution might provide a private mortgage at normal rates of interest. | Based mostly on the borrower’s well timed EMI reimbursement monitor document, the financial institution might provide the top-up mortgage at a concessional rate of interest. |
| A brand new private mortgage includes underwriting a recent proposal from scratch. Therefore, the processing time could also be increased than for a top-up mortgage. | The approval and disbursal time for a top-up mortgage is shorter than for a brand new private mortgage. |
Necessary factors to notice for a top-up mortgage
A borrower should word that merely having an present personal loan from a financial institution is not going to make them eligible for a top-up mortgage. Earlier than rolling out a pre-approved top-up mortgage provide or approving your top-up mortgage utility, the financial institution will think about varied eligibility standards. It’s going to think about your present mortgage reimbursement monitor document, age, top-up mortgage quantity requirement, credit score rating, earnings, debt-to-income ratio, and many others. Should you fulfil the financial institution’s eligibility standards, the financial institution will approve your top-up mortgage utility.
A top-up mortgage might contain a processing fee, which is normally a proportion of the mortgage quantity or a flat quantity. Similar to an everyday private mortgage, the borrower can use a top-up mortgage for any objective, supplied it’s reputable and legally allowed. Some use instances embrace medical or another emergency, dwelling renovation, celebrating an event (competition, birthday, marriage, anniversary, and many others.), having fun with a household vacation, and many others.
The repayment tenure of the top-up mortgage would be the similar as the prevailing private mortgage. Nonetheless, the financial institution might provide a alternative of an extended tenure relying on the remaining tenure of the prevailing mortgage and the borrower’s desire. Within the case of a brand new private mortgage, it should have its personal reimbursement schedule, impartial of the prevailing private mortgage reimbursement schedule.
Prime-up mortgage vs new private mortgage: Which one must you go for?
In case your mortgage quantity requirement is small and pressing, it’s possible you’ll think about going for a top-up mortgage. The reimbursement schedule and tenure would be the similar as the private mortgage. Managing a top-up mortgage is simpler than managing a number of private loans.
In case your mortgage quantity requirement is increased and also you desire a longer reimbursement tenure, it’s possible you’ll think about going for a brand new private mortgage. You might take a brand new private mortgage from the identical financial institution the place you could have an present private mortgage or from another financial institution. Evaluate private mortgage presents from completely different banks primarily based on the processing payment, rate of interest, reimbursement tenure, reimbursement flexibility, fees/waiver on partial prepayment/foreclosures, and choose the one which most closely fits your requirement.
Gopal Gidwani is a contract private finance content material author with 15+ years of expertise. He could be reached on LinkedIn.
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