Consider a scenario where you borrowed a home loan to buy your dream house. You are aware of the repayment schedules and also plan your finances accordingly. You will be paying the EMIs at the decided interest rates. But, what if all of this tedious and meticulous planning fails due to an unforeseen event? The reasons might be many. Starting from a pay cut, a sudden financial crunch etc. In this case, you may be wondering how you will adhere to the repayment schedules.
A lot of lenders will have options of top-up loans or a balance transfer that can help you in these desperate times. If you are wondering which of the two is better, they have their own set of advantages and disadvantages. Read on to know more!
What is a top-up loan?
A top-up loan is a loan that is presented in addition to the existing loan by the lender. The top-up loan is generally offered to current customers who have an existing loan with the client and have a good credit score.
What is a balance transfer?
A balance transfer is a kind of credit card transaction in which the obligation is moved from one record to the next. In this case, the borrower may choose to transfer the loan to another institution to make room for some savings that can be used for some other emergency purpose.
Difference between a top-up loan and a balance transfer
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Particulars
Meaning
Purpose
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Top-up loan
A top-up loan is a loan that is presented in addition to the existing loan by the lender. The top-up loan is generally offered to current customers who have an existing loan with the client and have a good credit score.
A top-up home loan can be used for any requirement. They do not come with conditions related to the end use of the loan
You can avail of a top-up at any point of the borrowing cycle
The top-up loan is given for the remaining period of the loan. The tenure varies for each lender. |
Balance transfer for loan
A balance transfer is a kind of credit card transaction in which the obligation is moved from one record to the next. In this case, the borrower may choose to transfer the loan to another institution to make room for some savings that can be used for some other emergency purpose.
A home loan transfer on the other hand is a transfer of a loan to another lender for lower interest rates and can be used only for repayment of the loan You may opt for a balance transfer only after paying 12 installments of the loan
A balance transfer lets you avail low interest rates and hence lessens the loan tenure. |
Eligibility Criteria for a top-up loan and a balance transfer
There are different eligibility criterias for both a home loan top-up and a balance transfer
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Top-up loan
An already borrower's loan from a lender. You may apply for a home loan top up after three months of the loan disbursement.
A top-up loan is sanctioned once the lender checks your repayment history and if there have been any defaults. |
You have a current house loan and have repaid 12 installments.
The property ownership should be with you. It cannot be under renovation or construction. There should not be any EMI defaults. |
How to make the right decision?
Before deciding finally which option to choose from, let us look at the factors given below
Availability
The option of a balance transfer on a home loan is available once you have repaid 12 installments for the given loan. The option of a top-up loan is available only after a few years of repayment of the loan. Both these facilities are available only if there are no defaults in repayment.
Suitability
Both these options are good in case of any financial strain. The top-up loan will allow you flexibility to use the resources as and when required and the balance transfer will let you enjoy the low interest rates and EMIs.
EMI
With balance transfer, your monthly installments will reduce considerably. But in case of a top-up on the existing loan, the EMIs are bound to increase as the loan amount is over and above the loan amount that is present.
Conclusion
Whether you opt for a balance transfer on a loan or a topu-up loan, you need to first assess your needs. You can also choose to transfer your loan to a new provider and avail a top-up on the same. You would have to see if the new lender has significantly reduced the interest rate that will help you to lower the tenure of your loan. If you opt for a top-up you get an extra loan to tide over other needs as well. So, take a thorough assessment of your situation and choose between a top-up or a balance transfer.
FAQS of Top-Up Home Loan Vs Balance Transfer:
1:Does a top-up loan affect your credit score?
No, a top-up loan does not affect your credit score.
2:What are the benefits of home loan transfer?
The benefits include
- Lower rates of interest
- Smaller EMIs
- Part prepayment facility
3:can a home loan be transferred to a personal loan?
No, a home loan cannot be transferred to a personal loan.