Manish, 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 a period of 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 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 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 the 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 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 interest just for the top-up loan alone in the long run. With the recent hike in his salary, Manish decided to go for top-up on the home loan with the tenure of 5 years.

Top-up Personal Loan

If you do not have a home loan and currently having 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.

End Note

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 top-up personal loan could be costly, and you might end up paying additional interest on the repayment.