Personal loan vs complementary loan: Know the advantages and disadvantages


If the loan taken to purchase a long-term asset is insufficient, the borrower may need to borrow additional money to close the gap.

Since buying a long-term asset requires a heavy investment, it may not be possible for most people to pay the full amount out of pocket. So, to buy a house, people usually depend on home loans. Besides lower interest rates compared to unsecured loans like personal loans, a home loan also offers tax advantages which also encourages buyers to take out a loan.

Likewise, auto loans or other such loans taken out to purchase long-term assets are also cheaper than unsecured loans.

If the loan taken to purchase a long-term asset is insufficient, the borrower may need to borrow additional money to close the gap. Such a borrower would have two options: either take out an additional loan on the existing loan, or take out a personal loan.

The interest on a top-up loan is usually comparable to the interest on the original long-term loan and does not require additional paperwork, but it is difficult to get a sanction. On the other hand, taking out a personal loan can be expensive, but easier to take.


“A personal loan is an unsecured loan that can be used by any individual, while a supplemental loan is a kind of secured loan that can only be used by an existing home loan borrower,” said Pranjal Kamra, CEO by Finology.

“Due to the relatively lower interest rate structure and flexible loan term, top-up loans are a better alternative to a personal loan. A complementary loan can be taken out for a maximum term of 30 years or the remaining term of your existing home loan, while a personal loan is offered for a maximum term of five years. In addition, if you take out a loan for the purpose of renovating or extending a house, a complementary loan would offer various types of tax incentives that are not available in the case of a personal loan, ”he said. added.

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“However, not all mortgage borrowers are offered a top-up loan facility. Only people with a good payment history and a good credit rating can get the loan sanctioned for a top-up loan, ”Kamra added.

Comparing the two loans, Abhishek Soni, CEO and Founder of Upwards, said: “It is important to understand the difference between a top up loan and a personal loan before availing of either one. A complementary loan, as the name suggests, is like a callback loan given to an existing borrower. A complementary loan is generally preferred over personal loan because the interest rate is often relatively lower than that of personal loans. Moreover, since the lender would already have your KYC details / documents, the loan processing will be faster and easier. On top of that, even the term of a top-up loan is longer, which can lead to a lower Equivalent Monthly Payment (EMI), making it a better option out of the two.

Speaking about the benefits of top-up loans, Anil Pinapala, Founder and CEO of Vivifi India Finance Private Limited said, “Under the current circumstances, when there is less credit available in the market, a top-up loan has its advantages. As the consumer generally does not need to provide new documents for the supplemental loan and as is the case with their existing lender, they may be able to attract a better interest rate.


Pointing out the downside of a top-up loan, Pinapala said, “However, if the top-up loan is for an existing secured loan like a car or a house, it increases the principal owed and thus reduces equity. It would also mean that if one tries to sell a vehicle, bought by taking out a car loan, the borrower would first have to erase the complementary loan, which would not be the case if the customer had accessed a new personal loan. . “

Critically analyzing the two types of loan options, he suggests, “So the answer to this question depends on the consumer’s need, whether it is a short or long term need and also depends on how quickly he needs his funds. However, in any case, I would advise any potential borrower to always shop around and get quotes from various lenders and make an informed decision whether a personal loan from a new lender is better or a supplemental loan from a lender. existing.

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