When an unexpected financial emergency arises, many people instantly think of applying for a personal loan. However, what if you already have an ongoing loan? In such cases, you are left with two choices—either apply for a new personal loan or opt for a top-up loan on your existing loan. Both options can provide the money you need, but they come with different costs, eligibility criteria, and long-term impacts on your credit profile.
In this article, we break down the difference between personal loans and top-up loans, their pros and cons, and which option might suit you better.
A top-up loan is an additional loan that banks or NBFCs (Non-Banking Financial Companies) offer to customers who already have an active personal loan. It is usually extended to borrowers with a strong credit history and a good repayment record.
Since the bank already has your financial and repayment details, the approval process is much faster than a fresh loan application. Another advantage is that interest rates on top-up loans are typically lower than those of new personal loans, making them a more affordable option.
However, the amount you can borrow depends on how much of your original loan you have already repaid and your overall repayment capacity.
If you don’t qualify for a top-up loan or if the amount offered is not enough, applying for a new personal loan becomes the next option. To get this, you’ll need to apply afresh with a bank or NBFC, and the lender will assess your eligibility, income, and credit score before approval.
Unlike top-up loans, new personal loans usually carry higher interest rates and involve additional charges such as processing fees. This makes them comparatively more expensive. Moreover, the application process takes longer because lenders need to verify your documents and creditworthiness from scratch.
According to financial experts, if you have been paying your EMIs on time for your existing personal loan, a top-up loan is generally the smarter and cheaper choice. It not only comes with lower interest rates but also saves time due to faster approval.
Before deciding, you should check whether the top-up loan amount being offered is enough to meet your financial needs. If it falls short, only then should you consider taking a new personal loan.
Whether you choose a top-up loan or a new personal loan, frequent borrowing can negatively affect your credit score. Too many loan applications make lenders believe you are overly dependent on borrowed money, which signals higher financial risk.
On the flip side, making timely repayments helps improve your credit score over time. Experts recommend borrowing only when absolutely necessary and ensuring you repay without delays.
Top-up loans are quicker to approve, usually cheaper, and best suited for borrowers with a clean repayment record.
New personal loans are more expensive due to higher interest rates and processing charges but may be necessary if you need a larger amount.
Always assess your actual financial requirement before choosing between the two options.
Repeated borrowing—whether through personal loans or top-up loans—can hurt your credit score.
Timely EMI payments are the best way to maintain and improve your creditworthiness.
In short, if your current lender offers a sufficient top-up loan and you have been diligent with repayments, a top-up loan is usually the better deal. However, if the amount doesn’t cover your needs, a new personal loan may be your only option.
Whichever you choose, remember that loans should only be taken when absolutely necessary, and disciplined repayment is the key to protecting your financial health.
