Manish, a 35-year-old software employee, had taken a home loan five years ago for 60 Lakhs for a tenure of 20 years. He has been diligently repaying it until now. He wanted to extend a portion of his house to build an additional room. He needed funds to complete the task for which his only option was borrowing from banks. As he needed an amount of INR 5 Lakhs, he decided to apply for a brand new personal loan and repay it over 5 years.

Before he was going to apply for a personal loan, he happened to meet his friend Anil, who is a banker. As he was talking about his need to apply for a personal loan, Anil suggested to Manish, ‘’Why don’t you go for a top-up loan?’’. Interested to know what a top-up loan is, Manish requested his friend to elaborate on top-up loans.

Applying for a fresh loan would involve a documentation process, fresh credit enquiry, processing fees etc.
Anil said that a top-up loan is a facility provided by the bank to get additional funding over and above your existing home loan or personal loan. As Manish was already having a home loan, quite fascinated, he asked him how he can benefit from this loan.

But with a top-up loan, you can get immediate funding without having to go through all the processes”, explained Anil.

But Manish seemed quite sceptical about the interest rate when compared to a fresh loan. Having understood this, Anil worked out the mathematical calculation by comparing both options.


Top-up loan

Personal loan

Loan Amount

INR 5 Lakhs

INR 5 Lakhs

Interest Rate

Maximum of 9.25%

Starts from 11.25%


5 years

5 years




Total Interest Paid




As per the above table, Manish could save nearly INR 20,000 with the top-up loan. But the interest rate on a personal loan could go even higher while the interest rate on a home loan can maximum increase by 1.25%.

However, there is also a disadvantage with the top-up loan, if Manish wants to repay it with the remaining tenure of his home loan of 15 years. In such a scenario, you will be paying a hefty sum as an interest just for the top-up loan alone in the long run. With the recent hike in his salary, Manish decided to go for a top-up on the home loan with a tenure of 5 years.

Top-up Personal Loan

If you do not have a home loan and currently have a personal loan, you can still get additional funding over your existing loan. However, as this is an unsecured loan, the lender would check your past repayment, age, debt to income ratio etc, to grant you a top-up on the personal loan. The interest rate could vary depending on your credit history.


A top-up loan should not be taken just because it is simply available. It becomes fruitful only when you have the requirement for finance. Because a top-up personal loan could be costly, and you might end up paying additional interest on the repayment.

FAQs for Top-up Loan

  1. Is a Top-up loan a good idea?

The main benefit of a top-up loan is that it can be availed at comparatively low-interest rates. The regular personal loan interest rates range between 11-24%. However, a top-up loan interest rate is closer to rates offered for home loans.

  1. How do top-up loans work?

A Top-up loan means an extra loan. This financing option comes as an add-on to the existing loan amount for a home loan and personal loan. A top-up loan is provided to customers who have an existing relationship with the bank or lender. It can be availed by those who have a good credit score and have sufficient repayment ability.

  1. What is Top-up loan eligibility?

Common eligibility criteria for Top-up loans are:

  1. Individuals who have an existing home or personal loan with the bank
  2. It is provided when the borrower has repaid a certain portion of the existing loan
  3. Applicants must have a stable job and sufficient income
  4. Individuals with good credit score and credit history
  1. Do I get tax benefits on a top-up loan?

A home loan normally provides tax benefits like deduction of up to Rs. 1.5 lakh on principal amount repayment as per section 80C of the Income Tax Act. Borrowers can also get up to Rs. 2 lakhs of deduction towards interest payment in a financial year under section 24. For a top-up on a home loan, borrowers can also claim tax benefit.

  1. Which is a better top-up loan or a personal loan?

Top-up loans generally have flexible terms and lower interest rates as compared to personal loans. A fresh personal loan may cost higher than a top-up loan.