Sometimes, life happens and you may find yourself needing another loan shortly after obtaining a personal loan. Fortunately, some banks allow individuals to access a loan top-up. Basically, this kind of loan allows you to obtain an extra loan in addition to your existing loan. This product is flexible and easy to get, hence, many borrowers often go for it.
What is a Loan Top-Up?
A loan top-up loan is a financial help that banks provide to individuals that allows you to access an extra loan in addition to your existing loan. Basically, this product caters to you if you have a need that your initial loan was unable to cover. You get a little more financial aid to help you out, then pay back based on the terms of the loan agreement.
How Does a Loan Top Up Work?
Basically, when you top up a loan, the bank does not actually add money to it. Instead, they will give you a fresh loan for the remaining balance together with the additional amount you want to borrow.
For instance, if your current loan is N5,000 and you decide to borrow an extra amount of N2,000, the bank will open a new loan account for N7,000 and first pay off your current loan. This leaves you with the remaining amount. However, the interest rate and term of the new loan may vary from your current loan. This means that you may need to pay more interest than you did on your first loan.
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What Requirements Do I Need To Obtain A Loan Top Up?
To get this kind of loan, the bank has to be absolutely convinced that you really need it. To be eligible for it, you need a good credit history to assure the lender that you will pay it back in time. Also, the lender will run some background verification checks. If your credit report is good and they verify your information successfully, the lender will then grant the top-up loan by demanding some processing fee. However, in some cases, banks may not ask for a processing fee.
What Are The Features of Loan Top-Up?
Here are some key features of a top-up loan:
1. Tenure
Lenders give these kinds of loans for the outstanding period of your current loan or for 10 years. The tenure varies from bank to bank.
2. Interest Rates
The interest rates lenders charge on top-up are a little higher than what they charge for your home loans. Hence, you pay a higher interest rate if you want a top-up.
3. Utilisation
You can use a top-up loan for purposes like construction or modification of your house or to cover your personal expenses. However, you cannot use this kind of loan for speculative purposes.
4. Flexible Loan amount
Generally, a top-up personal loan is 70-80% of the original. That is a pretty good sum and should be able to cover most of your needs. However, you cannot borrow a top-up that is more than your original loan amount.
Bottom Line
A loan top-up loan is simply a loan that you can access in addition to your existing loan. Basically, this loan allows you to cater for any extra emergency need your current loan is unable to cover. However, the term and duration of this loan will be different from your first loan.
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