Personal Finance

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Top Up vs Personal Loan | Making the Right Choice

Published On May/19/2024

When deciding between a topup loan and a personal loan, various factors such as loan amount, eligibility, interest rates, tax benefits, tenure, processing time and fees, and the lending source must be considered. Here's a comparative analysis to help you choose the better option for your needs.

Significant Differences Between a Personal Loan And a Topup Loan

Here is a comparison of personal loans and top-up loans.

1. Loan Amount

  • Personal Loan: The loan amount varies widely depending on the lender and the applicant's profile, typically ranging from ₹50,000 to ₹50,00,000.
  • Top-Up Loan: 70 to 80 % of an additional top-up loan on the existing amount will be given to the borrower by the financial institution.

2. Eligibility

  • Personal Loan: Available to salaried individuals, self-employed professionals, and businessmen based on income, credit score, and repayment capacity.
  • Top-Up Loan: Eligibility depends on which loan the borrower has- personal or home loan. Also, the loan is only availed after a certain time and to those who have repaid some portion of the existing loan.

3. Interest Rates

  • Personal Loan: It is generally higher due to the unsecured nature of the loan.
  • Top-Up Loan: These loans are generally lower than personal loan rates but higher than the base home loan rates.
  • Also Read: Interest Rate on a Personal Loan

4. Tax Benefits

  • Personal Loan: No tax benefits are available unless the funds are used for specific purposes like home renovation or business investment, where interest paid might be tax-deductible.
  • Top-Up Loan: Under Section 24 (b) of the Income Tax Act, tax benefits can be claimed if the loan is used for home renovation or construction, allowing deduction on interest payments.
  • Also Read: How to Avail Income Tax Benefits on Personal Loan

5. Tenure

  • Personal Loan: The tenure typically ranges from 1 to 5 years.
  • Top-Up Loan: The tenure can extend up to the remaining tenure of the existing loan or can be shorter, usually ranging from 5 to 20 years, depending on the loan type and lender policies.

6. Processing Time and Fees

  • Personal Loan: This loan requires more processing time, as the document verification takes time. It can take 10 to 15 days, and the fees are higher.
  • Top-Up Loan: The processing is usually lower since the document verification was already done during the previous loan. Hence, the processing fees are also lower. The loan is processed within a few days.

7. Lending Source

  • Personal Loan: Banks, non-banking financial companies (NBFCs), and online lenders offer this type of loan.
  • Top-Up Loan: This is generally offered by the same lender that provided the original loan, usually banks and housing finance companies for home loans, and occasionally by NBFCs.

Advantages and Disadvantages of a Top-up Loan


1. Little to No Documentation

Since the borrower already has an existing loan with the lender, much of the necessary documentation is already on file. That eliminates the need to resubmit extensive paperwork. The minimal documentation requirement simplifies the process, making it less time-consuming and stressful for the borrower.

2. Quick Processing Time

Given that the lender is already familiar with the borrower's creditworthiness and financial history, the approval process for a top-up loan is expedited. The streamlined approval process means that borrowers can access the funds much faster than they would with a fresh loan application.

3. Usage Flexibility

Unlike specific-purpose loans (like home or auto loans), a top-up loan can be used for various purposes. Borrowers can use the funds for home renovations, medical expenses, education, business investments, or other personal financial requirements. This flexibility makes top-up loans a versatile financial tool that can adapt to the borrower's changing needs over time.


1. Unavailable to New Applicants

Top-up loans are only available to individuals with an existing loan with the lender. New applicants who do not have a prior relationship with the bank or financial institution cannot apply for a top-up loan. This restriction limits access to top-up loans for fresh loan borrowers who might need additional funds but do not have an existing loan account with the lender.

2. EMI Will Increase

Adding a top-up loan to an existing loan increases the overall loan amount, which results in higher Equated Monthly Installments (EMIs). That can strain the borrower's monthly budget.

The borrower must ensure sufficient income to cover the increased EMI payments. Failing to do so can lead to financial stress and potential default.

3. Fixed Principal Amount

The amount available for a top-up loan is usually limited and depends on the outstanding principal of the existing loan and the borrower's repayment capacity. Borrowers may not be able to secure as much additional funding as they need.

4. Can Be Availed from an Existing Bank Only

Borrowers can only take out a top-up loan from the bank or financial institution with which they already have an existing loan. This limits their ability to shop for better interest rates or terms from other lenders. The existing lender might not offer the most competitive interest rates for top-up loans compared to other banks or financial institutions, leading to higher overall costs for the borrower.


Choosing between a top-up loan and a personal loan depends on your specific financial needs and circumstances. If you need a smaller amount quickly and already have an existing loan, a top-up loan can be a convenient and cost-effective choice. However, if you need a larger amount, are a new applicant, or want to shop around for better terms, a personal loan may be the better option. Always evaluate the interest rates, repayment terms, and your financial situation before deciding.