Difference Between Top-up Home Loan & Personal Loan

James Clifford has been planning to renovate his home for some time now. He wants to completely renovate his kitchen and get the rest of the house painted. However, the plans were on hold due to a lack of funds. But James is keen on getting it done before the New Year, even if it means having to take a loan. 

While doing research online for the ways to raise funds, James came across two options- a Top-up Home Loan and a Personal Loan. He wants to understand the difference between the two so that he can select the one that meets all his needs. Let us help James understand the features of both.

• A home top-up loan can be availed only if you already have an existing home loan. It is a secured loan and your home is the collateral. As against this, a personal loan can be availed by anyone without any collateral or security. Since James already has a home loan, the Top-up Home Loan is a viable option.
• He should compare the interest rates of both Top-up Home Loan and Personal Loan and decide based on his ability to repay. 
• The loan amount and loan tenure are other factors for James to consider. If James wants a longer tenure loan or a higher amount loan then the Top-up Home Loan is a better option. Since it is a secured loan, the bank will offer a higher loan amount. The tenure is also longer because the loan is given for the outstanding period of the home loan. On the other hand, the maximum loan amount for a Personal Loan is usually lower since it is an unsecured loan and the term is generally capped at five years. 
• One critical point of distinction between the two loans is the time to sanction. Personal Loans tend to get sanctioned much faster because there is no collateral involved. If James has a pre-approved personal loan, based on his relationship with the bank, he could get a Personal Loan approved within minutes. In comparison, since the Top-up Home Loan is a secured loan, sanction and approval may take more time. So, James should decide based on how quickly he needs the funds. 
• For a Top-up Home Loan, the bank may check whether James has been paying his home loan EMIs on time and without any default. In other words, his past repayment track record of the ongoing home loan has to be in order. This is in addition to checking James’s salary and credit score. While in the case of a Personal Loan, the bank will check James’ salary and credit score.

Now that James has understood the difference between the two kinds of loans, he can thoroughly evaluate which one meets his needs and make an informed decision. Once he finalises the plan for funding his home renovation, James can look forward to celebrating the New Year in his new and improved home. 

You can also calculate home loan EMI online. You can calculateyour EMIs with Axis Bank's EMI calculator.

Disclaimer: The Source, a content creation and curation firm, has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.