Should you get a Top-up Loan or a Fresh Loan?

We all have come across situations where we had to get a personal loan to fullfill our financial responsibilities. Be it for emergencies that wreaked distress in our life or the last moment home repair that was unavoidable, personal loans come in handy in such situations and save the day. But there are a lot of concepts in the world of funds that many of us don’t understand properly and today we will discuss the two most important concepts – Top-up Loan and Fresh Loan and how are they different from each other. 

In the realm of personal finance, we’re often faced with the dilemma of choosing between a top up personal loan vs fresh personal loan. Understanding the intricacies of these two can help us make an informed decision.

What is a Top-up Loan?

A top-up loan, as the name suggests, is a facility provided by financial institutions that allows us, as borrowers, to access additional funds on top of an existing loan. This offer is typically extended to borrowers who have a track record of making timely repayments on their current loans.

In simpler terms, when there are situations where we need some more money on top of the money we have already borrowed, this is where the concept of top-up loan comes into existence. For example, if we have a home loan or a personal loan from a bank and we need extra funds, the bank may offer us a top-up loan based on our repayment history.

The best part about a top-up loan is that we don’t need to state the purpose of the loan. We can use it for any personal or business needs. This makes it a convenient option when we require extra funds without going through the hassle of applying for a new loan.

Also Read: Difference Between Secured and Unsecured Personal Loans

The Process of Getting a Personal Loan:

Applying for a personal loan from Airtel Finance is a breeze. Follow these simple steps:

• Download and register on the Airtel Thanks app.
• Navigate to the Financial services section.
• Apply for your loan by providing personal information, PAN card, and employment details.
• Complete the KYC process.
• Await your loan approval. Usually, it’s handed over in a few minutes.

Pros and Cons of Top-up Loans:

Top-up loans can be beneficial because of their convenience and lower interest rates compared to credit cards. However, they extend our debt period and increase our total interest payout.

What is a Fresh Loan?

A fresh loan, as the term suggests, is a completely new loan that we can apply for, independent of any existing loans that we might have. This type of loan is not linked to or dependent on any previous loan agreement; it stands on its own and comes with its set of terms and conditions.

When we apply for a fresh loan, it’s like starting a new deed. We approach a lender – this could be a bank, a non-banking financial company (NBFC), or any other financial institution – and submit a fresh loan application. This application will be evaluated based on our current financial status, credit history, and ability to repay the loan.

The lender then conducts a thorough review of our loan application, which includes a detailed credit check. If we meet the lender’s criteria and our loan application is approved, we enter into a new loan agreement with the lender. 

Also Read: What are the tax benefits for Personal Loans?

Pros and Cons of Fresh Loans:

Fresh loans provide the flexibility of choosing a new lender and potentially better terms. However, they require a new application process, which might be time-consuming and could impact your credit score.

Factors to Consider when Choosing Between Top-Up Loan and Fresh Loan:

Consider factors like our current financial situation, the loan amount needed, the interest rates on offer, and our credit score. 

Comparing Interest Rates: Top-up Loans vs. Fresh Loans:

Typically, the interest rates for top-up loans can be slightly higher than for fresh loans because we are getting a loan on top of our existing loan and that makes the interest rate go up. However, this isn’t a hard and fast rule and varies from lender to lender.

Repayment Terms: A Critical Differentiator:

The repayment term can be a deciding factor. Top-up loans extend our existing loan tenure, while a fresh loan comes with its own repayment schedule.

The Impact on Credit Score: Top-up Loan vs Fresh Loan:

While a top-up loan might not affect our credit score significantly, applying for a fresh loan might cause a temporary dip due to the hard credit inquiry involved.

Flexibility and Accessibility: What Works Best for You?

Considering what works best for oneself is key. If we need quick access to funds, a top-up loan might be more convenient. If we desire better terms, a fresh loan could be the answer.

Making the Right Choice for Your Financial Needs:

Whether we choose a top-up loan, or a fresh loan depends on our unique financial needs and circumstances. Weighing the pros and cons of each and make an informed decision that aligns with our financial goals will make a whole lot of difference. Remember, a loan is a commitment and should be approached with careful consideration.