Borrowers can avail an additional top-up loan on an existing car loan. Generally, people opt for a top-up loan on an existing loan to meet sudden financial requirements such as weddings, home renovation, medical emergencies, etc. When a person opts for a top-up loan against a car, the bank or NBFC processes the loan faster as well as with minimal documentation.
Keep reading to find out the top factors that a person needs to consider before getting a top-up loan against a car.
Things to keep in mind before getting a top-up loan against car
The factors that a borrower needs to consider before taking a top-up on their existing car loan are as follows:
- Rate of interest
The interest rate applicable on a top-up car loan is a vital factor that needs to be considered by the borrower. This generally depends on the borrower’s profile. If the interest rate applicable to the top-up loan is higher than the rate applicable to the car loan, one must avoid availing such a top-up loan.
Borrowers can ask their existing lender to lower the interest rate on their top-up loan. However, some banks or financial institutions may decide to offer a top-up loan with the same interest rate as the car loan, which might not be financially beneficial in the long run. In this situation, a borrower needs to make the decision wisely.
- Hidden charges
Before taking a top-up loan against car, it is important to check whether there are any hidden charges. Certain banks or financial institutions charge high processing fees, documentation fees, etc. It is important to get information about any hidden charges in advance and calculate whether the EMIs would be affordable or not. If the lender is charging a lot, it is not wise to take a top-up loan.
Borrowers can also decide to negotiate the terms of the agreement; this way, many hidden charges or associated fees can be omitted from the agreement, thus making the loan more affordable and attractive.
- Income
A top-up loan against a car can become an additional burden on the borrower’s shoulder if the repayment is not planned in advance. After opting for a top-up loan, the borrower has to pay back both the original loan amount as well as the top-up amount. Therefore, individuals should get a top-up loan only if there is an increase in income or number of sources of income. Otherwise, it might be problematic to repay the loans.
- Loan tenure
This is another important factor that one needs to consider before getting a top-up on a loan against car. Generally, as the top-up loan is an additional amount on the existing car loan, the repayment tenure remains the same as the existing car loan.
For example, in case the loan tenure for an existing car loan is of 5 years and the borrower opts for a top-up on it after a period of 3 years, then he/she will have to repay the outstanding balance of the existing car loan along with the top-up amount within the remaining 2 years.
Therefore, as a borrower, it is wise to calculate whether repayment of the entire loan amount is possible within the stipulated time.
- Loan amount
Before opting for a top-up loan, the borrower needs to decide the top-up loan amount they want. Most financial institutions and banks offer top-up loans as high as 180% of the car’s value. However, one needs to analyse whether they will be able to repay it timely. If someone borrows a lot and is not capable of repaying it, it might lead to a penalty. Therefore, it is best to calculate how much one can afford.
Eligibility criteria to opt for a top-up loan against car
Different banks and NBFCs have different eligibility criteria when it comes to offering a top-up loan against a car. However, the basic list of criteria to qualify for this loan are as follows:
- Applicants need to be a citizen of India.
- Applicants should be between the age group of 21 to 60 years.
- In case of salaried employees, they need to have 1-year experience with their current employer. Salaried employees also need to provide their salary slips.
- For self-employed individuals, proof of income tax return is mandatory for the last two years along with bank statements.
- Borrower needs to have a clean record of EMI payments for the existing car loan.
However, when a person applies for a top-up loan they might also need to fulfil other criteria as well.
It is always possible to negotiate for a top up car loan interest rate based on the borrower’s repayment track record and credit score. Borrowers should always repay all their debts on time so that they have a decent credit score for new loan applications. Having a strong credit report and a high credit score will ensure getting a top-up loan against a car at affordable rates.
