Which Is Better, A Top Up Loan Or A Personal Loan? Everything You Need To Know (January 2023)

Top Loan Vs Personal loan

Top Loan Vs Personal loan

“A big part of financial freedom is having your heart and mind free from worry about the what ifs of life”.  In our daily lives, many individuals experience life-changing situations. In such situations, there may come a time when financial aid is a need. These days getting the required financial support by availing of loans is relatively easy and comfortable. From time to time, people from all walks of life opt for loans to raise much-needed additional funds and meet unavoidable financial requirements. The growing demand for loans propelled banks and financial organisations to introduce various loan packages in India’s financial market.

Credit borrowers have multiple choices when looking for loans following a sudden financial emergency. In a sea of offers, top-up and personal loans would win the people’s choice award as they are the most popular. Contrary to popular belief, these two loans differ from one another. Each has pros and cons, which often need clarification about which loan would suit their needs. Understanding the difference between a top-up loan and a personal loan may help an individual make informed decisions.

Top-Up Loan vs Personal Loan

A personal loan is an unsecured loan that a person can borrow from any bank or financial institution. This loan can be used as additional funds for various financial requirements.

  • You can get a personal loan to fund a dream wedding, aid with medical bills, or start a business. In contrast, a top-up loan is like any prepaid service where you get a certain amount of money added over and above an existing loan which may be a personal or home loan. It is a secured loan, as the house is usually taken as collateral. Furthermore, personal loans can be availed online with great ease and comfort for almost all purposes. All leading public and private sector banks in India offer these loans to individuals who prove their eligibility and are ready to agree with the terms and conditions set by the chosen bank.
  • Due to multiple benefits, many people apply for instant personal loans every year and get the requested money after completing all formalities successfully.

However, with a top-up loan, banks and financial organisations usually give to individuals who have already taken out a loan and need additional cash to meet unavoidable financial emergencies. The significant advantage of such a loan is that you can get the requested money quickly. The bank can easily verify your details using the available data and announce their judgement. In addition, an amicable relationship with the existing banker, a good credit score, and excellent repayment ability makes you eligible for top-up loans.

Significant Differences Between a Personal Loan And a Top-Up Loan

Seven features differentiate a personal loan from a top-up loan. These are:

  • Loan amount

Personal Loan Top-up Loan
An individual can get a personal loan of about 50,000 to 50 lakhs depending on their eligibility and requirement.


A financial institution will give a borrower at least 70 per cent or 80 per cent of an additional top-up loan on the existing amount.


  • Eligibility

Personal Loan Top-up Loan
Personal loan eligibility will depend on the applicant’s age, nationality, and employment, with a minimum salary of 20,000. Their credit score should also be around 750 or above. Most financial institutions will require documents related to your identity, residence, employment, salary credits, existing loans and EMIs, pending bills and credit score reports. The documents required for a personal loan will differ from one bank or financial institution to another. Therefore, checking with the banks before applying for a loan is recommended. A financial institution will get the documents required for a top-up loan from the submitted documents of the previous loan. So, top-up loan eligibility will depend on whether an individual has an outstanding personal or home loan. The loan can only be availed after a stipulated amount of time has passed and a portion of the existing loan has been repaid.
  • Interest Rates

Personal Loan Top-up Loan
For personal loans, the interest rate is usually higher as it is an unsecured loan. Top-up loan interest rates are usually low. This is because a top-up loan is an additional loan taken on top of an existing loan, making it a secured loan. On top of that, the house is taken as collateral.
  • Tax Benefits
Personal Loan Top-up loan
Usually, no tax benefits can be claimed from a personal loan. . If the funds of a Top-up loan are used for pre-defined purposes such as home renovation or expansion, tax benefits can be claimed up to a certain amount.
  • Tenure

Personal Loan Top-up Loan
The tenure for a personal loan is much more rigid than for a top-up loan. The maximum tenure for this kind of loan is five years. A top-up loan has a flexible tenure. The maximum tenure for a top-up loan can be up to 30 years or the remaining tenure of the existing loan.
  • Processing Time and Fees

Personal Loan Top-up Loan
When applying for a new loan, the processing time is usually longer. This is because the documents provided by the applicant will have to go through a verification process. The applicant’s profile and documents will be checked and scrutinised for approval. This usually takes 10-15 days. For these reasons, the processing fee is also higher with personal loans. The processing time for a top-up loan is shorter than for a personal loan. This is because the necessary documents have already been verified and approved for the previous loan. A top-up loan can be availed through online applications as well. It usually takes a few days for a top-up loan to be processed. The processing fee is also significantly lower.
  • Lending Source

Personal Loan Top-up Loan
A personal loan can be availed from financial institutions and banks. Some loan aggregators such as buddy loan, money view and lendingkart allow personal loans to be availed through online applications. A top-up loan can only be availed from the same loan lender of the previous loan.

Also Read : The Right Time To Take Personal Loan


Which Loan Offers To Choose?

Taking a top-up loan will be the best option when the plan is only to cover additional expenses beyond the existing loan’s coverage. By doing so, a borrower will receive a loan at a lower interest rate and at the same time, the loan will be disbursed more quicker. No documentation will be needed as the lender is the same as the existing loan.

However, if there is a need for an enormous sum of money, and the borrower is comfortable with paying the whole amount at a higher interest over a long-term period, then getting a personal loan would be recommended. Instant personal loans without documents are easily accessible and convenient when you need a large amount of money for long-term financial commitments.

Both top-up loans and personal loans have their advantages and disadvantages. Take a loan, especially a top-up loan, only when there is an absolute need for additional cash for urgent or emergency expenses like home improvement, an unavoidable medical bill, etc. Remember that taking extra money as a loan puts additional pressure on your budget and compels you to optimise general expenses to ensure timely payment.

Tips For Choosing The Right Loan

Many take loans when they have urgent financial commitments and require more money. Independent financial experts recommend that borrowers do homework before taking small online loans. Research and analysis, vigilance, and straightforward communication with bank executives improve your knowledge about different loan packages and allows you to choose what you need most.

Also Read:  Personal Loan Insurance Plans: Protect Yourself from Different Risks!

 Evaluate The Loan Amount You Need

The primary purpose of any loan package is to provide people with the necessary financial help. Unfortunately, financial problems have pushed people to take out a loan sooner than later. Before availing of a loan, make sure to evaluate the amount of loan that will be required. This will dictate the kind of loan that would best fit your needs. Before taking a loan, get complete information and analyse the requirements impartially. Evaluating the loan amount beforehand will help you avoid taking a loan beyond your financial capability. Take only the required money as a loan and ensure you repay all EMIs on time.

Know The Terms And Conditions of The Loan

All borrowers should familiarise themselves with the terms and conditions of the loan agreement. Personal and top-up loans have several clauses and terms and conditions that should be understood. Knowing all the terms and conditions of a loan agreement enables you to perform your duties well, protect your interest, and avoid penalties and legal actions. Financial terms can be difficult to understand, so seek the required help from bank executives and try to understand all terms and conditions of the loan agreement. Only sign the contract paper if you think the loan is in your favour.

Bank Loan Approved

Seek Expert Advice

Keeping a close eye on the latest development in the financial market is challenging. To avoid choosing an outdated loan package that doesn’t suit your interest, seek expert advice on personal and top-up loans and get detailed information. The more information you have, the better your decisions will be.


The discussion about personal loans vs top-up loans has been going on for several years. Both loans have pros and cons, like any other financial product. Understanding the differences between the two will help people make better-informed decisions. Happy borrowing.