Top up loan vs. Home improvement loan: Which is better?

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5 min 11 Jan 2023

Highlights

Overview of Home Improvement Loan
Defining a Top-up Loan
Benefits of a Top-up Loan

Home renovation and maintenance projects may require substantial funds. Whether you want to enhance the functionality of your home or restructure it, you may require a decent amount of funds. In such a situation, borrowers have two options: they can either opt for a Home Improvement Loan or a Top-up Loan. With this article, you will be able to understand the difference between a Home Improvement Loan and a Top-up Loan.

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 for Home Improvement

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

The repayment tenor for a personal loan for home improvement is typically short ranging from 12 months to 84 months.
The interest rate on these loans starts from 11%* p.a. and onwards, basis your eligibility and the lender.
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. However, this fee may differ based on your lender.

Now that we have a basic understanding of opting for a personal loan for home improvement, let us understand what a Top-up Loan is.

Also Read: Difference Between Home Loan Sanction and Disbursement

What is a Top-up Loan on Home Loans?

Borrowers who opt to transfer their Home Loan balance to another lender have an option of availing of a Top-up Loan on Home Loans. A Top-up Loan refers to another loan that you can avail of over and above your ongoing Home Loan. Let us now look at the features of a Top-up Loan on a Home Loan:

Borrowers who have paid their EMIs consistently 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 slightly higher than that charged on Home Loans. 
The Loan amounts can be as high as Rs.1 Crore* or more basis eligibility.
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—which 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 competitive interest rates. Home renovation loans are also feasible, 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. If you have been repaying your loan diligently, you may 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 Property

*Terms and conditions apply.

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