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February 23, 2017
A Personal Loan Top-Up and a Parallel Loan are concepts of a Personal Loan with diverse features suited to individual needs. Customers with additional Loan requirements can Apply for a top-up as an addition to the existing Loan or a secondary Personal Loan as a Parallel Loan. Major Banks today, HDFC Bank, ICICI Bank, AXIS Bank and YES Bank, offer their customers a choice of Applying for a Top-Up or a secondary loan.
A Top-up is an addition to an existing loan with a particular financer. Individuals can ask for further amounts when required as a top to the current Personal Loan.
In contrast, a Parallel Loan is a secondary loan issued independently an applicant can apply for additional sums to the same or an alternate lender as a Parallel Loan.
Though a Parallel Loan or a Top-up both look to fulfil similar financial requirements for personal needs, the implications vary; here is a brief as to under which circumstance a Top-Up or a Parallel Personal loan is considered more favourable.
A lender is happy to extend further credit to a customer with an on-time payment record a Top-Up Personal loan is beneficial under the following circumstances:
For Emergency requirements: The Top-Up is preferable when an existing loan holder requires funds in an emergency. As the customer details are previously verified, expediting the stages for processing with quick disbursal of funds.
The Convenience of a single EMI: With a Top-Up amount added to the existing Loan, the applicant can pay a single instalment for the complete loan amount, saving the applicant the hassle of keeping track of an additional loan and EMI.
For additional eligibility: With a Personal Loan top-up, an applicant’s eligibility for the loan amount increases, as the principal amount repaid is considered when sanctioning the amount. Thus, applying for a top-up is better if an extra amount is required.
For a suitable Tenure: if the applicant feels an additional EMI is a burden on the budget and needs an extended tenure to repay the Loan. With a top-up and the loan schedule being restructured, an applicant can choose a tenure that gives easy repayment terms.
For smaller loan amounts: Applying for a Parallel Loan is advisable when smaller sums are needed as a parallel or a secondary loan can be paid back independently within a quicker term. Thus, the customer saves on costs involved in restructuring a Top-up loan.
More suitable terms: With a parallel loan, an applicant also has a choice to survey the options available from lenders offering better terms for a Personal Loan. An alternate lender may provide a lower interest rate for a parallel loan than a Top-Up.
Lock-in period: A loan holder must pay at least 12 instalments to Foreclose a Personal Loan and repay the amount. With a parallel loan, the customer can repay the amount borrowed independently after fulfilling the pre-closure clause.
Vintage of the existing Personal Loan: Most Banks grant extra funds as a Personal Loan Top-Up after three months. An individual can meet unexpected expenses via a parallel loan from another bank an amount is given without any lien to the issue of the existing Loan.
Savings on Restructuring: With extra funds added as a Top-Up, the existing Loan is restructured, and a new repayment schedule is issued to the applicant for the principal balance and Top-Up amount. The new amortisation schedule will not account for the previously paid interest. Thus, a Parallel loan saves you the extra interest.
The essential customer criteria for a Top-Up and Parallel Personal Loan are similar, as they are variations of the same product. To be eligible, a customer should fulfil the following criteria.
Current Profile: The Top-up Loan and a Parallel loan will be issued based on the customer’s existing profile. The employer should feature in the company category list of the Bank, and if there is a change the applicant’s current profile will be considered for the eligibility of a Top-Up or a Parallel Loan.
Stability of job and income: The applicant should have a consistent income since they acquired the previous Loan a salary increase will enhance the Top-Up and parallel loan possibilities. A regular income with a steady job is the basis for a stable lifestyle; any untoward circumstance leading to loss of employment can challenge meeting the monthly budget. Thus, the lender wants to ensure a vintage of employment before issuing further funds.
A timely repayment track of the existing Personal Loan: The unsecured nature of a Personal loan makes it susceptible to defaults and delays in payments therefore, before being issued further credit, the applicant must prove the ability and intentions for making the repayment as per schedule. Any bounces or unpaid returns of the EMI in the existing personal loan tract will mar the chances of a further loan.
Financial eligibility and CIBIL: All the existing obligations, such as the applicant’s credit cards and other loans, are considered. The CIBIL Score of the applicant should be above 720 points; all credit taken must be a clear repayment record with no outstanding dues. The income in hand or the net monthly salary must support all the outgoings and allow an extra EMI to be added to the fresh loan amount.
Recent Credit Issue: Lenders are wary of clients appending too much credit and need help to handle the same. Banks prefer to give a gap of three to six months before issuing further amounts as a Top-Up or a Parallel Personal Loan to enable learning of the customers’ repayment behaviour. This policy is more relevant to first-time loan seekers or has a higher outgoing ratio than the monthly income.
As the loan amount approved as a Top-Up is merged with the existing Loan to complete the disbursal, the previous account is closed, and a new Personal loan comes into existence with the principal balance of the current Loan and the amount approved as a Top-Up. With the transfer of the Top-up to the customer account, a new EMI is presented to the customer’s Bank account.
The customers’ situation influences the decision to Apply for a Parallel Loan or a Top-up and need there is also a choice factor; some individuals may prefer to stay with their original lender with whom they feel a sense of comfort and confidence while others may like to try an alternate lender and are more focused on the cost and time factor.
In either situation, we hope the content above will clarify to our esteemed clients whether a Top-Up or a Parallel Personal Loan will serve their needs better.
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