Difference between top-up loan and personal loan

Learn the differences between top up loans and personal loans to make smart borrowing decisions.
Difference between top-up loan and personal loan
5 min read
24 July 2023

In today's fast-paced world, financial needs can arise unexpectedly. In these circumstances, personal loans can be a useful tool because they provide quick cash to cover a range of expenses. However, when additional financial requirements arise, borrowers often find themselves pondering between two options: taking out a personal loan or opting for a top-up on their existing personal loan. Each option comes with its own set of considerations, thus understanding the difference between them is crucial to meet your financial requirements.

Understanding personal loans

A personal loan is an unsecured lending option, which does not require any collateral. While determining personal loan eligibility, lenders take into account several factors, including income, credit score, and repayment history. Online personal loans are simple to obtain. All you need to do is complete an online form and attach the necessary paperwork. Once the lender reviews and approves your documents, the loan amount will be transferred to your account. With lenders like Bajaj Finance Limited, the personal loan disbursal process is convenient, hassle-free, and requires minimal documentation.

Understanding top up loans

A top up loan is taken over and above an existing loan. The existing loan could be a personal loan, a home loan, or any other type of loan. It is commonly believed that top up loans can only be used for home loans that already exist. That is not true, though. Top up loans can be used to take over various loans such as personal loans, as long as your lender has a top up loan facility available. However, there can be certain requirements to be met to be eligible for a top up on a personal loan. For instance, to qualify for a top up personal loan, the borrower must have made a particular number of EMI payments on his current loan.

Top up loan vs. Personal loan

Let us discuss some key factors that make personal loans and top-up on personal loans distinct from one another:

1. Source of borrowing

  • Personal loan: You can avail of a personal loan from any lender, as long as you meet their eligibility criteria and can submit the required documents.
  • Top-up loan: It can be availed only over and above your existing personal loan from the same financial institution. If you want to avail of the top-up from another lender, you need to transfer your existing outstanding loan to the new lender.

2. Tenure

  • Personal loan: The tenure of personal loans varies depending on the lender. With Bajaj Finance Limited, you can repay the personal loan comfortably over a tenure of up to 96 months
  • Top-up loan: A top up loan's tenure can be adjusted and is often the same as the term of your current personal loan. 

3. Interest rates

  • Personal loan: The personal loan interest rates depends upon the lending institution. For instance, we offer personal loans with an interest rate starting from 11% p.a. Personal loan's interest rate is also influenced by variables including your income, employment history, age, credit score, etc.
  • Top-up loan: Since you are availing a top-up on your existing personal loan, you can negotiate the interest rate with your lender.

4. Processing time

  • Personal loan: The processing of a personal loan takes a while because the lender runs a thorough background check, which ranges from verifying personal loan documents, credit score, previous loan repayment history, income source stability, age, etc.
  • Top-up loan: Since the lender already has your repayment history and verified documents, the processing time for your top-up loan is simplified. Lenders typically prefer to provide a top up on a personal loan to borrowers who pay their EMIs on time.

5. Maximum loan amount

  • Personal Loan: The amount of the personal loan a borrower can get varies from lender to lender. However, factors like your credit score and other eligibility conditions do have an impact on the loan amount. With Bajaj Finance Limited, you can borrow funds of up to Rs. 40 lakh with minimal documentation.
  • Top-up loan: A top up loan is usually a fixed percentage of your existing personal loan. Depending on the lender and the type of existing loan, the loan amount could change.

In conclusion, the choice between a personal loan and a top-up on an existing personal loan depends on individual circumstances and financial requirements. Both options have their advantages, and you should carefully understand the pros and cons before planning. It is crucial to choose a loan that aligns with your financial goals and allows you to manage debt responsibly while meeting your immediate financial needs. Using our financial tools like the personal loan EMI calculator and interest calculator can help you in making the correct decision that suits your financial situation.


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