What is the Difference Between a Top-up Loan and a Home Improvement Loan?

Maintaining a home is no easy task – there is always something that needs fixing and there's always a corner that can be redone. Unfortunately, undertaking maintenance projects requires money. If your home is a few years old, you will most certainly need access to a decent sum to revive it completely. In such a situation, borrowers have two options: they can either opt for a Home Improvement Loan or a Top-up Loan. This article aims to put an end to the Top-up Loan vs Home Loan improvement debate.   

What is a Home Improvement Loan?

A Home Improvement Loan is a loan taken out to fund costs related to home repairs and refurbishment. Since lenders do not usually have a direct product category called a Home Improvement Loan, it can either fall under the umbrella of a Personal Loan or a Top-up Loan. 

You can use either of the types to renovate and refurbish your home. Let us first understand how a Personal Loan can be used as a Home Improvement Loan. 

Personal Loan as a Home Improvement Loan. 

A Personal Loan for home renovation can cover all range of home development expenses from getting new tiles, painting walls of your home, fixing the ceiling and many more.  

• The repayment tenor for a Personal Loan for home improvement is short ranging from 12 months to 84 months.  
• The interest rate on these loans starts from 11%* p.a. and onwards. 
• You can avail of an amount ranging from Rs.1 Lakh* to Rs.35 Lakh*, basis eligibility. 
• The processing fee for a Personal Loan payable is usually 4%* of the loan amount. 
• Individual borrowers can opt for part-prepayment or foreclosure on a Home Loan with floating interest rates with no foreclosure charges.  

Now that we have some understanding of what a Home Improvement Loan via Personal Loan means, let us understand what a Top-up Loan on Home Loans is.

Also Read: Difference Between Home Loan Sanction and Disbursement  

What is a Top-up Loan on Home Loans?

These days, borrowers who have availed of a Home Loan and have made timely repayments and maintained a good credit score are given the option of Top-up Loan on Home Loans by their current lender. A Top-up Loan refers to another small loan that you can avail of over and above your ongoing Home Loan from your current Home Loan lender. Let us now look at the features of a Top-up Loan on a Home Loan.   

• Only those borrowers who have paid the last 12 months' EMI can avail of a Top-up Loan.  
• The Top-up Loans can be repaid over the same tenor as your Home Loan. 
• The interest rate on Top-up Loans is only 1%* to 2%* higher than that charged on Home Loans.  
• The Loan amounts can be as high as Rs.1 Cr* or more basis eligibility. 
• Individual borrowers can opt for part-prepayment or foreclosure on a Home Loan with floating interest rates with no foreclosure charges. 
• One can claim deductions under the Income Tax Act if one uses the Top-up Loan amount to acquire, construct or refurbish a property.  

We now come to the most important question - Top-up Loan vs. Home Improvement Loan: what is better? Read on to know.  

Benefits of a Top-up Loan over Home Improvement Loan

Low-Interest Rates

Top-up Loans are offered to borrowers at highly competitive interest rates. The interest rate for these loans is generally 1%* to 2%* higher than that charged on Home Loans. Home renovation loans are also affordable, but they usually draw a slightly higher interest rate than that charged on Top-up Loans. However, this is the case for secured Home Improvement Loans; unsecured Home Improvement Loans are offered at a much higher interest rate.  

Also Read: A Quick Guide to Securing a Better Interest on Home Loans 

It is Easier to Get Access to Top-up Loans

Top-up Loans are extended to borrowers by their current Home Loan lenders. Since you already have a loan running with them, your current lender will already know your repayment capacity and history and therefore, if you have been a good customer, you will get a loan relatively easily. Home Improvement Loans do not always get sanctioned so easily.  

Easy Paperwork

Top-up Loans require minimum paperwork as your lender would already have everything, they would need to process the loan. To avail of a Home Improvement Loan, however, you must collect and supply all the paperwork needed for a loan. 

Why Top-up Loan is a Better Option?

Between a Home Improvement Loan and a Top-up Loan, it makes more sense to avail of a Top-up Loan if you already have a Home Loan running. Top-up Loans are sanctioned at low-interest rates, come with a longer repayment tenor and end-use flexibility, and can be used for the purposes of home renovation and expansion.   

Also Read: Comparing Home Loans and Loans Against Properties 

*Terms and conditions apply.