Top-Up Loan vs Balance Transfer vs Fresh Loan: A Borrower’s Guide to Smarter Choices

When you need additional funds, you have one of three options to choose from. If you have an existing loan, you can either top it up or transfer it to a lender at a lower rate. If you don't have an ongoing loan, your only option is to apply for a fresh loan. 
While on the surface, this can seem like a dilemma, there is, in fact, a simple way to pick which option is the best under the circumstances. This blog will help you do just that. 

Your Choices In A Nutshell

The smart way to go about making choices is to understand all the options available to you. 

Top-up Loan

A top-up loan is an additional amount you can borrow on top of an existing personal loan. To simplify the process and avoid confusion, your original loan and the additional top-up loan you take are restructured and treated as one new loan with a new repayment schedule.
The process also requires minimal paperwork and is quick, as the lender already has all of your documentation on record, along with your repayment track record. 

A Fresh Loan

A fresh loan is essentially a brand-new loan you take on to meet your financial needs. Unlike a top-up loan, in this case, you have the flexibility to approach other lenders who may offer you a loan with better terms. 
Plus, you can apply for one via an instant loan app if you need quick access to funds without the trouble of visiting the lender's branch.

Balance Transfer

A balance transfer is not a loan. It is the process of moving your existing loan from one lender to another that offers better terms (higher tenures or lower interest). The goal is to reduce your existing financial burden. 
 

Understanding Your Loan Options: Top-Up, Balance Transfer, or Fresh Loan?

Here are three probable scenarios for which you may have to choose among these three options -

If You Want to Save Money

If loans are offered at lower rates than your existing loan, consider transferring your balance. This will improve your cash flow immediately, and you will save money over time.
Imagine you have a Rs 5 lakh personal loan @24% interest with 36 EMIs still to go. At the current rate, your EMI will be approximately ₹19,616 per month. At this rate -
•    You will pay a total of ₹7,06,176 (19,616 x 36 months)
•    The interest you will pay is ₹7,06,176 - ₹5,00,000 =  ₹2,06,176
Now, if you transfer your balance to a lender offering, say, 19%, the numbers become:
•    Monthly EMI: ₹18,363
•    Total amount paid over 3 years: ₹6,61,068
•    Total interest paid: ₹6,61,068 - ₹5,00,000 =  ₹1,61,068
The total savings over the remaining three years are almost ₹45,000.

If You Have An Existing Loan

Now, if you have an existing loan and require a small amount of funds quickly, opt for a top-up on your existing loan. However, the maximum amount you can get is based on the lender's policies. 
Some will limit your top-up amount to the original loan amount sanctioned.
For example, if your original loan was ₹5 lakhs and you have repaid ₹1.5 lakh, you may be limited to a top-up amount of ₹1.5 lakh. 
But some lenders may consider factors like your credit report and salary hike, and may consider you to be eligible for an even larger amount. 

If You Do Not Have An Existing Loan

If you do not have an existing loan, then your only option is to apply for a fresh loan. Reputed lenders offer personal loans of up to ₹5 lakhs at interest rates starting at 19% per year. 
Some basic requirements for a personal loan application are -
•    Documents - Aadhar Card,Pan Card.
•    Eligibility Criteria - Age between 21 and 58 years, monthly income of at least ₹15,000, 750+ credit score, Indian citizenship, etc.
You can check your personal loan eligibility before applying for one to determine what loan amount you can get depending on your creditworthiness.

Your Best Move Simplified

The choice between the three options essentially comes down to what your financial needs are. remember, the right move will not give you access to funds when you need them, but will also help you save money in the long run. 
If you are in need of a personal loan at this point, apply for a fresh personal loan via Hero Fincorp today. Enjoy a 100% digital process, and get your loan approved instantly.

Frequently Asked Questions

Will opting for a balance transfer impact my credit score?

Yes, you will see a temporary drop in your credit score when you opt for a balance transfer. This is due to the fact that lenders will pull your credit report to verify your eligibility. 

Can I apply for a fresh loan even if I have an existing loan?

Yes, you can apply for a fresh loan even if you have an outstanding loan. Lenders will, however, decide on how much they approve based on your repayment capacity after taking into account your existing debts. 

Can I top up a single loan multiple times? 

Yes, if your repayment track record is solid, you can continue to top up your existing loan several times. 
Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented Here is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.