Should You Get a Top-up Loan on Your Home Loan for Debt Consolidation?

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4 Reasons to Choose a Top-up on a Home Loan

Looking for a way to reduce your debt burden? Here are 4 good reasons why availing a top-up on your home loan may be the best bet.

Debt can give anyone sleepless nights. But no matter how bleak you think your situation is, there is always a way out.

Going on a debt consolidation mission is not as difficult as it sounds and it can easily take your stress away even though the actual amount of debt you need to repay may not change drastically after implementing a few consolidation measures.

If you are a home loan borrower, debt consolidation can become that much easier because you are most likely eligible for a top-up loan.

Now, you may be wondering why we are asking you to consider taking a new loan when debt is a part of the problem. The answer is – you are going to use this loan for debt consolidation, i.e. pay off your existing debts, fully or partially, depending upon your situation. And you will do this at a pace and rate that is comfortable and easy for you.

Still not sure why you should go for a top-up loan on a home loan instead of, say, a personal loan? Here are 4 reasons that we hope will convince you:

Reason #1: It is easy to get

When you have problems repaying your loan, you are more likely to be stressed out. More so if you get calls or visits from collection agents, or new penalties are being levied on your debt. In such cases, the ease of getting a loan becomes a very good reason. Since the bank, or any other lender, already has your details because of your home loan, you will not have to go through the application process again. If you are eligible for a top-up loan on your home loan, you will most likely get it within a few hours or days after you apply for it. No additional documentation or approval required.

Reason #2: It is (usually) offered at a relatively low-interest rate

Debt consolidation entails reducing your debt burden. So availing a relatively high-interest loan like personal loan should be your last resort. You must look for other options. Most top-up loans on home loans are offered at a relatively low-interest rate. Even if the difference in the rate of interest between a personal loan and a top-up loan is 0.5% (which will be rare, if at all), go for the top-up loan. When you calculate the overall amount owed, this 0.5% is going to make a huge difference at the end of the repayment period.

Reason #3: You do not need to offer new collateral as security

You may already know that unsecured loans are more expensive (read high-interest rate) as compared to secured loans. The unsecured loan is most likely a personal loan which, as we have already discussed earlier, is usually not the best option. However, even for secured loan schemes such as a loan on property, securities or time deposits, you are putting more of your assets at risk. If you have a home loan, the bank already has the first or primary charge of your property (home) so by availing a top-up loan, you will not be required to submit any additional assets as collateral for the loan.

Reason #4: You can carry out debt consolidation discreetly

When you avail a new loan, you have to disclose the purpose for which you are availing the loan. However, you need not tell the bank why you need the additional funds when you avail a top-up loan on your housing loan. Most banks allow you to use the funds as you may please. You can use the funds for home renovation / extension, a vacation or (as we suggest) debt consolidation.

A note, however. You should definitely check if the bank allows you to use the loan for expenses other than those directly related to your home. If they do not, then this option may not be available for you. 

Having said that, a top-up loan is one of the best loan schemes to pay off unsecured loans (ahem! personal loans), credit card bills or other high-interest debts. The repayment period coincides with your home loan so you do not have to worry about remembering a new date to make repayment for the new loan.

A Final Word

Now that you know why a top-up loan on a home loan is the perfect debt consolidation option for you, you may want to know more about top-up loans or consolidation loans. We have a large database of consolidation loan options offered by different banks on our website. Please check out our consolidation loans page, if you are interested.

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