During a home loan tenor, borrowers can consider transferring their outstanding debt amount to a different financial institution with favourable lending terms. Consequently, this second lender can provide additional credit over and above the pre-existing loan at a lower interest rate to an applicant opting for refinancing. This additional funding is referred to as a top-up loan.
8 Benefits of opting for instant top-up loan on home loan
Some of the beneficial aspects of an instant top-up loan on a home loan include the following:
- Scope of debt consolidation
If a borrower has a pre-existing personal loan, opting for another one can lead to multiple hard inquiries in a short span. As a result, this borrower’s creditworthiness can be adversely affected. Therefore, if the applicant is eligible for a top-up loan on an existing home loan, it is comparatively favourable to go with this course of action. This way, different lines of credit open for a borrower can be combined as a single liability.
- Flexible documentation procedure
An extensive documentation procedure can effectively slow down the loan application processing and the subsequent disbursal. On the contrary, as their necessary details have already been documented for the primary loan, borrowers can apply for home loan top-ups with exponentially lesser paperwork.
To expedite the lending process, several notable lenders extend pre-approved offers on home loans and LAP to their existing customers who meet or exceed the eligibility parameters. So, any applicant may check the pre-approved offers by entering his or her phone number or name in the financial institution’s portal.
- Lower interest rates
A borrower is most likely to opt for a balance transfer if a different lender charges a lesser amount than the current home loan rate he or she is paying. Consequently, the interest rate charged on a top-up loan to this home loan will also stay comparatively lower. Therefore, applicants can save a lump sum by curtailing the total repayment outgo.
- Longer tenor
Financial experts suggest that it is an economically informed decision to opt for a home loan top-up rather than availing of personal or business loans. To elaborate, as home loans have a comparatively longer tenor, a top-up loan taken on those can run parallel to this prolonged loan tenor. As such a lengthy tenor is generally unavailable for personal or business loans, a borrower gets significant time to pay off his or her lender without any financial burden.
Moreover, a longer tenor will also reduce the cost of monthly instalments. Therefore, applicants can avoid the risk of defaulting on their EMI payments and prevent negative affect on their credit score.
- Collateral free credit
As an instant top-up loan runs simultaneously with the principal loan, a borrower will not need to pledge any security to avail of this additional funding. Therefore, a lack of collateral assets does not prevent a borrower from accessing formal credit from a financial institution.
- Zero end-use restriction
There are no set regulations about the purposes for which an individual can use the credit amount received as a top-up loan. Therefore, an applicant can utilise the loan to meet various personal or commercial needs.
- Consolidated Equated Monthly Instalment [EMI]
Some leading financial institutions enable their borrowers to consolidate the EMIs payable for the primary and top-up loans into one single monthly payment. Consequently, an applicant can pay off two lines of credit via a single payment every month at a slightly hiked rate. This streamlined pay-out is also pivotal for an applicant’s finance management.
- Tax benefits
Provisions under Section 24B and 80C permit certain tax benefits to a borrower availing of a home loan top-up. For instance, if this borrower uses the amount sanctioned to buy or build new housing, the principal amount borrowed and interest paid towards the loan can be considered tax deductible.
However, if an applicant utilises the sanctioned amount to repair, renovate, or alter a residential property, then he or she can only claim a tax deduction on the interest component of the loan.
As evident by the discussion above, a borrower can considerably benefit by using the debt instrument of a top-up loan. A comparatively cost-effective measure, this line of credit allows a borrower to raise funds as per requirement without falling into a debt trap. Additionally, a quicker disbursal policy of instant top-up on a home loan can cater to individuals in a financial emergency.