What is more beneficial- a top up loan or a balance transfer with a top up loan?

If you have a home loan running, you can get a top up loan from your existing lender or opt for a balance transfer with a top up loan. Here, we will see which makes more sense.

Nidhi moved into a new house a couple of years ago, and she is repaying her home loan. She is tying the knot soon and needs funds for her marriage. However, she finds out that alternatives are turning out to be very costly for various reasons. What should Nidhi do?

If you are in Nidhi’s situation, you can opt for a top-up home loan. Let us look at the features of a top-up home loan and why it is beneficial.

1. The money from a top-up loan can be used for any purpose. Nidhi can use it for funding her marriage. Anyone can use this type of loan for any other purpose especially when he or she needs urgent funds.
2. The other benefit of a top-up home loan is that it comes with rates of interest which are similar to the one you are paying for your home loan. The rate of interest on a top-up home loan is thus much lower than other forms of unsecured loans like a personal loan.
3. Since the bank already has your documents and the KYC process is done, there is no new documentation required when taking a top-up loan. You would require to submit documents that show that you have been making regular payments on your existing home loan.
4. For the same reason, top-up loans are quickly approved. The bank would not need to do a verification, so the loan processing will be swift and seamless.
5. Top-up loans are also available for an extended period. Some banks may offer it for the tenure of the existing home loan. Others might offer it for 20-30 years. Other lenders may provide it till you retire or attain the age of 70.
6. If you use the top-up loan for certain specific reasons like home extension, renovation or for financing future education, you can even avail tax benefits on your top-up loan.

Home loan balance transfer vs top-up loan with your existing lender: While you can take a top-up loan with your current lender, the other option is to go for a home loan balance transfer and top-up loan with the new lender. If you have a choice between the two, it makes sense to go for a home loan balance transfer and top-up loan. So if you require a top-up loan, do a loan balance transfer and take a top-up home loan with the new lender. We will now see the benefits of a home loan balance transfer and a top-up loan with the new lender.

1. A home loan balance transfer lets you get the benefits of lower interest rates offered by another lender. An interest rate even a few percentage points lower can help you save a lot of money on interest payments.
2. When you do a home loan balance transfer and take a top-up loan, you can negotiate for better terms and interest rates. The new lender is more likely to provide you with a top-up loan at competitive interest rates. Since both the existing loan and the top-up loan are at lower rates of interest, you stand to benefit.
3. In some cases, you may not be happy with the customer service of your existing lender. In that case it does not make sense to take a top-up loan with them. When you do a balance transfer and avail a top-up loan, you can choose a lender who has better customer service. So when it is the question of home loan balance transfer vs top up loan from your existing lender, you should always opt for the first option.

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