Personal loan: What is a top-up option and when should you go for it?

If you have taken a personal loan and realise that the funds are inadequate to meet your requirements, then a top-up personal loan is an option worth exploring.

For instance, assume that you took a ₹10 lakh personal loan for a wedding at home. That time, you did a back-of-the-envelope calculation, which, as it turned out, was slightly off the mark. The actual expenditure is around ₹2 lakh more. In such a scenario, what would you do?

One option is to use your credit card if the payment has to be made to a merchant. Else, you can take a fresh personal loan. Alternatively, you can take a top-up personal loan to meet the deficit.

Ajay Tyagi wanted to surprise his wife on her birthday with an expensive diamond ring, estimated to cost ₹6 lakh. When he enquired about the price a week before the big day, the actual price (after 3% GST) turned out to be ₹7.25 lakh.

Tyagi took a ₹5 lakh loan a few months ago to buy this luxury item, so he may have to opt for a top-up personal loan to buy the gift.

Similarly, if someone has taken a personal loan to meet the medical expenses for the treatment of his relative and the final bill outstrips the initial estimate, the borrower may opt to top-up his personal loan.

What is a top-up personal loan?

A top-up on a personal loan is an additional amount borrowed on your current personal loan. Banks usually offer them to borrowers with good credit scores who need more funds at a later stage.

The top-up loan is usually treated as an extension of the current loan, with terms that may vary from the original loan, albeit slightly.

However,  bear in mind that you are eligible to take a top-up personal loan only after you pay your EMIs for a few months on time. So, a top-up loan is incumbent on your creditworthiness.

(Remember that personal loans involve some risks)