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Top-up Loan or Car Loan

Car Loan v/s Top-Up

Last Updated 19th May 2022

Here is a comparison between car loan and top up loan:-

ParticularsCar LoanTop Up Loan
Interest RateLowerHigher
TenureUpto 7 years Upto 25 years
Usage Used to purchase carNo end usage restriction
SavingCan be expensive More saving
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What is a Top Up Loan?

A Top up loan is a financing option in which you get extra loan amount over and above your existing loan. This loan is available on home loan and personal loan . Remember, that top up loan is available for those who have a good credit score, good repayment history and relationship with the current lender. A top loan is considered as a personal loan and does not have any end usage restriction meaning it can be used for meeting medical emergencies, paying education bills and other expenses.

What should you choose - Top Up Loan or New Car Loan?

Taking a car loan to buy a car may not be the best option for you. If you have an existing home loan running, availing a top-up on your current home loan to finance your car has multiple benefits. The benefits are even higher for second-hand car buyers.

Why Top Up on Home Loan is more Appealing than Car Loan?

  • You get lower interest rates than that on a car loan: Top Up on home loans are relatively cheaper than car loans even as they are available at 0.5-1% higher interest rates than that on the home loans.
  • You pay low and affordable EMIs: Top up on home loans are available at home loan repayment tenure which can go up to 25 years. Car loans are shorter tenure loans of up to 7 years. Lower interest rates and longer term reduce your EMIs and monthly obligations.
  • No need to hypothecate your car: The property that you pledge for a home loan acts as collateral security for the top-up loans as well. You do not need to pledge your car to get a loan.
  • Easy loan processing: Top-up home loans are quickly processed as your loan is already approved, and the bank will do only a few additional checks.
  • Best Option for Used Car Buyers: You save more if you are buying a used car where financing is available at even higher rates.

Car Loan vs Top Up on personal Loan

Top up personal loan and car loan both have their own advantages and disadvantages however, your aim is to get a loan at a cheaper rate so that you can save money. Interest rate is the main factor which is considered while taking a loan. The car loan is provided as interest rate 6.50%-20.00% whereas top up personal loan is available at 8.70%-36.00%. The interest rate for every borrower differs because interest rate is dependent on the credit profile.


Mr.A avails a car loan of ₹ 5,00,000 at an interest rate 12.50% for 5 years. So, at the end of the tenure he will have to pay ₹ 6,74,938. In this amount ₹ 1,74,938 is an interest amount.

Mr. B takes a personal loan of ₹ 5,00,000 at an interest rate 10.50% for 5 years. Mr. B will repay a loan of ₹ 6,44,817, out of which ₹ 1,44,817 is interest amount.

So, you can save ₹ 30,121.

  • You will have to go through a fresh documentation process in car loan. No new documents are required in top up personal loan.
  • Top up personal loan is collateral free you will not be required to pledge your car as a collateral. If you opt for a car loan then you will have to pledge your car as security because it is a secured loan.

How will you save on a Home Loan Top Up than a Car Loan?

  • The interest rate on top up home loans is lower than car loan interest rate. Top up home loan interest rate are 6.50% and car loan interest rate ranges between 6.50% to 20.00%.
  • You can also save on taxes if you take a top up on home loan under section 24. However, the loan amount should only be used for home renovation or extension.


Which one is better top-up on a home loan or new car loan?

Home Loan Top-up can be considered a better choice for financing a car as it offers a lower rate of interest than car loans. Top up home loan starts at 6.50% whereas car loan starts at 6.50%

What are the benefits of a top-up loan?

A top-up home loan has a lower interest rate, has longer repayment tenure and fast processing. Also, you are not required to submit any new documents as you are an existing customer of the bank. Top up loans are quickly disbursed and approved in comparison to a new loan, provided you fulfill all repayment dues on time,

Should I take a car loan or a top-up loan for the financing of a used car?

Top-up loans can help you save more as the interest rate for used car loans is much higher if you avail a car loan.

Can I get tax benefits on a top-up home loan?

No, under sec 24 of the Income Tax, you can only get a tax benefit on top-up home loan if you have taken a home renovation loan or extension.

New car Loan or top-up on existing loan which is better?

Top up on an existing loan is a better option because it can help you save interest and go through minimal documentation. The interest rate on top up loans is lower when compared to car loans. You can avail top up home loans at 6.50%.

What is the lowest interest rate on a home loan top up?

The lowest interest rate on a home loan top up is 6.50% which is offered by Citibank.

Is it legal to use a home loan to buy a car?

If you take a top up on a home loan then it is legal to use the loan amount to buy a car, but if you take a home loan then you must use the amount to buy a home, renovate or extend the home.

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