A top-up loan allows borrowers to take out additional financing over and above an existing loan. These loans provide extra money beyond a home loan, auto loan, or other loan a borrower already has.
While top-up loans can be helpful, it is important to understand their features and approach them with due consideration. This comprehensive guide will explore common top-up loan interest rates and repayment models. Read on for a deeper understanding.
Top-Up Loan Interest Rates
The Interest rate for a top-up loan varies but is generally around 6-9%* per annum. The interest rates may be slightly higher than standard loan rates depending on borrower profile and lender’s assessment. While specific interest rates differ between financial institutions, some influencing factors on top-up loan rates include:
- Credit score: Borrowers with higher credit scores qualify for lower rates across all lending products, including top-up loans. Those with poor credit pay higher interest.
- Debt-to-Income (DTI) ratio: Your existing debts compared to your income also impact loan pricing. The higher your DTI, the riskier lending to you becomes.
- Loan-to-Value (LTV): For secured top-up loans, your loan amount compared to the value of the asset backing it also matters. High LTV loans indicate higher risk.
- Collateralisation: Unsecured top-up loans that lack collateral, like cars or business equipment behind them, also show financial institutions greater risk exposure.
- Market interest trends: When market benchmark rates like the prime lending rate rise, top-up loan rates tend to increase in tandem (albeit at a higher overall percentage).
Given the rate variation between loan providers, it is wise to compare top-up loan quotes from multiple providers before borrowing. Compare rates and loan terms to find the best fit for your financial situation.
Conclusion
Top-up loan offers an opportunity to access additional funds beyond your existing loans. Since lenders may perceive these loans as higher risk the interest rates and terms can be more stringent. It is important to compare rates carefully and opt for a repayment schedule that fits your budget comfortably, both now and in the future.
By following due diligence, you can use top-up loans effectively to meet your financial goals. Shriram Finance offer top-up loan solutions, helping borrowers to find solutions that match specific needs and repayment preferences.
