Many people take personal loans to cover unexpected expenses or big purchases. When you first apply, you choose how much money you want to borrow. But sometimes, you might need more money later on. Luckily, you can ask the financial institution to increase your loan amount after you've already received the money. This is called a top-up loan.
In this article, we’ll see how you can increase your personal loan amount or take a top-up loan whenever necessary.
Understanding How Top-up Loans Work
A top-up loan is an additional loan amount that you can take over and above your existing personal loan. Top-up loans enable individuals to access extra funds besides what they have already taken.
For instance, if you initially took a ₹5 lakh personal loan and have repaid ₹3 lakh of the principal amount, you may qualify for a ₹2 lakh top-up loan. Subject to approval, this would potentially increase your overall credit limit back to the original ₹5 lakh amount.
The top-up loan amount gets clubbed with your current loan, and your EMIs are recalculated based on the updated loan amount and tenure.
When You Might Need to Increase the Personal Loan Amount
There are a few common scenarios where borrowers realise they need a bigger personal loan amount than what they had originally applied for:
- Underestimating the Cost of a Major Purchase: When taking a personal loan to finance a large expense like home renovation, wedding, or higher education, you have to estimate costs. If actual costs exceed your estimate, you may face a shortfall.
- Emergency Expenses: Sudden financial setbacks like medical emergencies or job loss may force you to need a larger loan amount.
- Changing Needs: Over the loan tenure, your financial obligations might change, such as increased family expenses or a desire to buy additional assets.
Features of a Top-Up Loan
Top-up loans are a convenient way to get additional funds whenever you need them. Here are some key features of top-up loans:
1. Quick Disbursement:
Top-up loans are often processed quickly, providing you with funds within a short timeframe.
2. Minimal Documentation:
Compared to new loan applications, top-up loans usually require less documentation, as the lender already has information about you.
3. Lower Interest Rates:
You may be eligible for lower interest rates on a top-up loan compared to a new loan due to your existing relationship with the lender.
4. Flexible Repayment Options:
Lenders often offer flexible repayment options, allowing you to choose a tenure that suits your financial situation.
5. No Collateral Required:
Top-up loans are typically unsecured, meaning you don't need to pledge any assets as collateral.
How to Increase Your Personal Loan Amount
Most financial institutions allow upgrading your personal loan amount after initial disbursement, subject to certain terms and conditions. Here are the key steps involved:
- Review Existing Loan Agreement: Check your loan agreement to see if your loan provider permits increasing the loan amount. Also, look for any specific clauses about applying for a higher amount.
- Assess Eligibility: Loan providers will evaluate your eligibility again to sanction a higher amount. Factors like income, credit score, existing obligations, and repayment history on current loans are considered.
- Submit Request: Contact your financial institution and submit your application to increase the loan amount. You may have to pay a processing fee. Provide documents to support your need for a higher amount.
- Get Credit Approval: The lending institution will review your application and inform you if you are eligible for an enhanced amount. The rate of interest and tenure may change in some cases.
- Sign Revised Agreement: If approved, you may need to close your existing loan and sign a revised agreement reflecting the updated loan amount, interest rate, EMIs, fees, etc.
- Pay Processing Fee: To increase your loan amount, you may have to pay a financial institution an administrative or processing fee.
- Get Top-Up Disbursal: The loan provider will disburse the additional approved financing amount to your account. Repayment terms will apply to the full revised loan amount.
Pros and Cons of Increasing Personal Loan Amount
There are some clear advantages and disadvantages of upgrading your personal loan amount. The table below highlights a few important pros and cons of increasing your personal loan amount:
| Pros | Cons |
| Higher loan amounts may help you meet urgent financial needs effectively. | The total interest outgo will be higher with an increased principal amount even if the interest rate remains unchanged. |
| You can combine multiple loans into one, making repayment easier to manage. | You may need to pay the financial institution a fee to process the top-up loan amount. |
| If rates have fallen since availing the initial amount, you can get the additional amount at a lower interest cost. | If the Equated Monthly Instalment (EMI) is the same, the tenure might get extended, resulting in a higher total interest payout. |
| Some loan providers reduce the interest rate if you move to a higher loan slab, which can lower your EMI. | Larger loan obligations can increase the risks of payment default if incomes stagnate. |
| You may be able to modify loan tenure to increase the principal amount. | A higher loan amount and obligation can negatively impact your credit score. |
Conclusion
Following these key steps, you can effectively secure a top-up loan and access extra capital when needed. Reviewing eligibility norms, preparing paperwork, comparing interest rates, and selecting the optimal application channel sets you up for swift processing and approval.
With careful planning, a personal loan top-up can help you deal with financial problems from unexpected emergencies. It helps you manage cash flow shortages without having to sell your investments or assets when you're in a difficult financial situation.
