Home Loan Top-up Vs Personal Loan

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Before purchasing a property, you should apply for a home loan. Say you wish to purchase a condo in the UAE. The property's worth is too high to be purchased in a single transaction. To purchase the home, you must obtain a loan from a bank or other financial organisation. This is known as a home loan.

We often get overwhelmed by financial emergencies and financial haste, some of the inescapable events that typically capture the majority of us. Due to their ambiguity and unpredictable nature, we get fluttered and feel under pressure.  People frequently use personal loans as a solution to mitigate these difficult circumstances. However, not everyone is knowledgeable on how to handle such trying circumstances or approach a lender to obtain a loan. Since they have never sought a loan before and know little about it, first-time borrowers are easily confused.

Policybazaar UAE offers you all relevant information and services related to personal loans and home loans. Our website is indeed a one-stop solution for all your queries and requirements for loans. Home loans and personal loans from the leading banks and financial agencies in the UAE are only a few clicks away on Policybazaar UAE. Browse through the list of loans in the UAE on our website. You can also apply for a new loan on our website based on your preferences and needs. Please read through the article for the best home loan top-up and personal loan offers and understand their basic features.  

What is a Home Loan Top-up?

A top-up is a supplement to your current home loan. You can avail a home loan top-up after you have paid the installments timely for a year or a predetermined time frame as mentioned in the agreement. However, lenders ask for a security deposit or collateral if you apply for a home loan top-up. The provided property is used as security for about 75% of the sanctioned loan amount. 

Let's say you obtained a home loan of AED 5 million with a 20-year term. Your home loan's outstanding balance amount is equal to AED 2 million after 15 years. Now, instead of choosing an expensive personal loan, if you are looking forward to renovating your house, you can choose a top-up loan to finance the procedure swiftly.

Benefits of Home Loan Top-up

This loan can be utilized to fulfill any financial need and is not limited to being used just for property-related purposes. You are also subject to tax benefits if you use the top-up for your child's education or property extension, renovation, or repair. In most cases, you do not need to go through new documentation to avail a home loan top-up. However, you cannot prepay the existing mortgage before paying off the home loan top-up.

  • Top-up loans have a lot of advantages, one of which is how simple it is to process and disburse them because you are already a bank customer.
  • It is simpler for you to repay the loan because the repayment period offered in the case of top-up loans is greater than the loan term offered in the case of personal loans.
  • As was already stated, top-up loans have far lower interest rates than personal loans, making them the best option. Most of the time, debtors choose top-up loans since they are less expensive than other loans and easier to repay.

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What is a Personal Loan?

As the name implies, a personal loan is a loan obtained by an individual from a banking institution to meet his or her financial needs. Since no collateral is needed, personal loans are referred to as unsecured loans. An individual's eligibility for a personal loan is determined by factors such as his or her ability to repay the loan, income, net monthly wage, credit Score, job status, profession, etc. As you need to pledge no security like gold or property, personal loan interest rates are generally higher than those offered on other loans.

Interest rates on Personal Loans in the UAE

In the UAE, an additional fee is added to the principal loan amount as part of the interest rate on personal loans. There are two distinct types of interest rates that apply to personal loans.

  • Flat Interest Rate: Flat interest rate is a constant interest rate that remains identical throughout your repayment tenure. The lowest personal loan flat interest rate in Dubai and the rest of the UAE may be 2.63%, and it may go up to 22.22%. 
  • Reducing Interest Rate: In contrast to a flat rate, reducing interest rate decreases each time you pay an installment. Only the outstanding principal balance of the loan is subject to the reducing interest rate on personal loans in the United Arab Emirates. The rates may vary from 5.24% to 39.99% across the country.  
Top-Up Personal Loan in UAE

Comparison between Home Loan Top-Up and Personal Loan

Nowadays, the majority of banking institutions provide top-up loans. Before choosing a creditor, consider your long-term objectives to make the most of the loan. Top-up loans are offered for a period of time that is normally equal to the length of the initial mortgage. However, borrowers have the option of top-up loans with terms ranging between 5 years and 20 years. Age, earnings, the valuation of the newly purchased property and any existing property, career prospects, etc. are all important factors in determining the loan's tenure. The fact that the duration differs from bank to bank should be taken into account while choosing home top-up loans in the UAE.

The highest personal finance loan amount, which has a 48-month repayment period, could be equivalent to 20 times your monthly earnings. Based on variables such as your sources of income, credit score, age, and employment situation, among others, the loan amount and interest rate are determined in the United Arab Emirates. 

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Difference between Home Loan Top-Up and Personal Loan

Although both home loan top-up and personal loans appear similar in terms of their purposes, the differences are to be duly noted. For example, if you are planning to opt for a personal loan in the UAE, you must consider a few factors that stand in stark contrast to home loans in the UAE. The following table tries to outline the basic differences between a home loan top-up and a personal loan.

Home Loan Top-up Personal Loan
It is a secured loan with your home (for which you initially applied for the home loan) as the collateral This is an unsecured loan with no security deposit in form of assets
Your home acts as the security deposit and thus the rate of interest is lower  As you do not need to pledge collateral, the rate of interest is higher
Approval time is comparatively shorter It requires a longer approval time since this is an unsecured loan
Documentation required is less since you have already submitted them during home loan sanction  Personal loan requires rigorous documentation including a lot of paperwork
The repayment tenure is comparatively higher You have to repay your personal loan in a shorter window of time 

You should now have a good understanding of the differences between these two loans, making it easier for you to choose which loan to take out. Customers who currently have home loans will profit if they want to avail of home loan top-up to get cheaper EMIs, a longer repayment period, low-interest rates, and minimal paperwork. For those who don't have a mortgage and don't have any assets to use as collateral, personal loans are the ideal option.

Top-Up Loan in UAE - Know Everything About It

Points to Remember

  • It is strongly advised that first-time borrowers thoroughly compare loan offers before deciding on one in order to dispel any confusion or lingering questions
  • Do extensive research before choosing any loan because one minor error could result in significant financial losses
  • It is crucial for you to keep track of any new offers and promotions made by lenders

You can easily apply for a loan of your choice on Policybazaar.ae. We provide you with premium services regarding checking and comparing all the loan possibilities and submitting an online loan application. You will soon be contacted by one of our qualified advisors who will explore your financing needs with you and recommend the best lending option. Along with helping you fill out the forms and submit them, our consultant will walk you through the entire loan procedure until the funds are disbursed and deposited into your bank account.

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