Top Up Loan or Personal Loan when you Need Emergency Money?

Facing a financial emergency can be daunting. How do you know what the right method is when you can barely think straight? Generally, you have two options to get the money fast – a top up loan or personal loan. They both have their benefits and times when they are most beneficial. Understanding the differences can help you determine what is right for you during a time that you need money fast.


What is a Top Up Loan?

A top up loan is an extension of an existing product, typically your home mortgage. With this financing option, you simply apply for extra money in addition to money already loaned to you. In most cases, there is not a lot you must do to qualify since the bank already knows your qualifying factors. Typically, as long as you have owned the mortgage for a few years; have made timely payments; are still employed with the same income; and your property value has not decreased, you are eligible. Most banks will maximize the amount you receive at 70 percent of the property value. The top up loan is a new product, though; it pays off the existing mortgage and starts a new mortgage at the new amount.


When is a Top Up Loan Better?

There are times when a top up loan is a better option than a personal loan, just like there are times when the opposite is true. Generally, if you have a good payment record on your mortgage, the top up financing is the best choice because the interest rate charged is typically much lower than you would receive on personal financing with no collateral. Due to fact the bank already knows you and your propensity to pay your bills on time, they are more willing to offer a lower rate in exchange for the security in your home. If you are facing a serious emergency where time is of the essence to receive the cash, this is the quickest option as well, as there are not a lot of qualifying factors you must go through. In fact, many banks offer the ability to apply online and get the funds in a very short amount of time.


When is a Personal Loan Better?

A personal loan has its time and place as well. If you need more money than would be allowed on your top up loan because of the outstanding balance on your mortgage versus the value of your property, this might be your only option. Another time that a personal loan would be a better option is if you plan on moving in the near future – say within the next few years. Due to the fact the top up financing takes away the equity in your home, you will have fewer funds to put down on the purchase of your next home, which could limit your options in home ownership. It pays to give long, hard thought to whether or not you will be moving, especially if it will be to a higher cost area as your choices will be limited as a result of your lack of equity.


In order to determine which financing option is right for you, you should weigh your options. Compare the interest rates and terms against one another and then consider your future plans as they all play a role in what is the right decision for you. Sometimes a lower interest rate is not in your best interest if you know you will need the funds in the near future to put down on another home. On the other hand, a lower interest rate could help you save more money every month, making the loan much less expensive in the long run. There is no straightforward right or wrong answer for everyone – you must weigh the options for your individual situation to determine what is right for you.


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