Car Top-Up Loan Vs Personal Loan: Which Is The Best Option For You?

Suppose Mr Sharma had bought a car with a loan a year back and the repayment tenure is of 5 years. Now, he needs some cash urgently for his mother’s medical treatment. What will he do? Should he opt for a car top-up loan or a personal loan? This is a dilemma faced by many people.

In the following sections, a brief comparison of both these options is given in detail. But first, one must understand how car top-up loans and personal loans work. 

What is Car Top-Up Loan?

A car top up loan is an additional loan given by a lender to its existing car loan customers. Borrowers can avail of this type of loan to meet all kinds of needs. Whether one needs a loan for children’s higher education, wedding expenses, medical treatment, foreign vacation, business or professional expansion, top-up loans can serve the purpose.

Some of the important features of these loans include quick application processing, attractive interest rates and minimal documentation needs. 

What is a Personal Loan? 

A personal loan is an unsecured loan which helps people to fulfil their financial needs. Borrowers don’t have to submit any security or collateral to avail of this type of loan. With the rise of digitisation, access to personal loans has become easier than before.

Personal loans tend to carry higher interest rates compared to secured loans but one does not require collateral to avail it. Moreover, the application process is much quicker.

Car Top-Up Loan vs Personal Loan

Here is a comparison between car top-up loans and personal loans: 

Loan eligibility

Here is how personal loans and top-up loans differ based on their eligibility. 

  • All lenders provide personal loans if applicants fulfil the eligibility criteria and submit the documents required. 
  • On the contrary, people can avail car top-up loans only on their outstanding car loan amount from the same lender. If they want to avail of a top-up car loan from a different lender, they have to transfer the entire loan balance first. 

Interest rates

The following are the differences between a personal loan and top-up loan interest rates:

  • Lenders take into account various factors such as income, age, employment and credit score to determine personal loan interest rates. 
  • But, the interest rates of top-up loans depend on the existing car loan. Generally, it is a bit higher than the base loan. 


Here are the points regarding the difference in tenure: 

  • Generally, the tenure for personal loans ranges up to 5 years. It may exceed 5 years for some lenders. The maximum time in terms of months varies from one lender to another. 
  • Borrowers enjoy a flexible tenure for car top-up loans because it is aligned with one’s existing loan tenure. In other words, if a person has 3 remaining years to repay a car loan, the top-up loan will have the same tenure.

Processing time and accessibility 

Given below are the important differences: 

  • Processing of personal loans takes some time because the lending institution checks the applicant’s credit record, income, age and repayment history. However, many lenders take only a few hours to process a personal loan application.
  • The processing time for a top-up loan is even less because the financial institution already has the necessary details. All that people need to submit are the updates of income details. 

Which is the best option? 

Now comes the most important question—should a borrower opt for a personal loan or car top-up loan? Well, there is no definite answer to this question because both of these financing options have their benefits and limitations. 

An applicant should check their features minutely and then make an informed decision. 

Factors to consider before choosing a financing option 

Borrowers can take into account the following factors to decide whether they should opt for a car top-up loan or a personal loan: 

  • Loan amount 

As discussed before, the loan eligibility for personal loans and top-up loans is based on different factors. For personal loans, this depends on the person’s repayment capacity and credit score while for car top-up loans, it depends on the original loan amount. One can use an online EMI calculator to make an informed decision. 

  • Urgency of requirement 

How urgently someone needs funds is an important factor that can help to decide. A top-up loan is more easily available than a personal loan because the lender already has the necessary information. 

  • The total cost of the loan 

It is better to opt for a financing option that costs less. Moreover, people can compare the personal loan and car top up loan interest rate for other charges before deciding on the option most suitable for them. 

  • Prepayment and foreclosure 

Borrowers should check whether the financing options have prepayment and foreclosure facilities and whether there are any applicable charges. 

To sum up, it is not easy to decide between a car top-up loan and a personal loan. Borrowers should check their financial requirements and the cost of each financing option among other factors. It will help them to choose the most suitable option. 

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