When you first take a car loan, you plan and budget your expenses accordingly for some portion of the loan based on the cost price of your vehicle and your repayment capability. But everything goes well, and sometimes there is a requirement of some additional finance to cover expenses like repair, upgrades, or even your own expenses. Your car loan is topped up at that moment.
But how much do you borrow as a top-up car loan? Is it worth it, and how do I do it so that one borrows the right amount? From the article below, here are our definitions and how we break in and out on what is top-up car loan, how much one borrows, and under what circumstances the amount is extended.
What is a Car Loan Top-Up?
A car loan top-up is an additional sum you borrow above your existing car loan. Your existing lender usually provides this, where you can boost your car loan amount in percentage or fixed amount based on your outstanding car loan balance and other conditions.
For example, assume you already have a pre-existing car loan of ₹3,00,000 and you want to take an additional loan of ₹50,000. You can choose a top-up of the car loan. The lender will check your eligibility and sanction the top-up so that you can increase your loan amount without going through the lengthy procedure of applying for a fresh loan.
Why Go for a Car Loan Top-Up
There are a few reasons why the top-up car loan might be perfect for you:
Requirement for Additional Funds: You might need more money for car improvement, repair, or even other individual purposes like house alteration or school fees. The top-up car loan helps you to borrow extra money without going through the hassle of another loan application.
Improved Loan Terms: Because the top-up car loan is secured by the same vehicle, better interest rates apply compared to non-secured loans such as credit cards or personal loans.
Convenient Loan: Rather than apply for a new loan entirely, your current lender arranges the top-up car loan, and hence it’s faster and more convenient.
Now that we’ve discussed a little about what is car loan top up, let’s go through how much you can borrow with this loan.
How Much Can You Get with a Car Loan Top-Up?
The loan amount you can avail in a car loan top-up depends on certain parameters like how much you have borrowed against the car loan, the value of the car, and the lender’s policy to lend. Let us see how these parameters work:
1. Outstanding Car Loan Amount
Your existing car loan amount is one of the key considerations that will determine how much you can borrow as a car loan top-up. Your bank will typically let you borrow a percentage of your existing loan amount.
For example, if you owe ₹2,00,000 on your car loan, the lender can let you raise your loan amount by 20-40%, and what that implies is that you can avail another loan of ₹40,000 to ₹80,000. The percentage will actually be based on the lender’s discretion and also based on the credit history of the borrower.
2. Market Value of Car
Your current market value or today’s value of your car is also used while determining the amount you can be extended with in the case of top-up loans. Your car depreciates with time, and your bank can use the depreciation to lend you the value of the top-up against your car.
If the car is good and has a good resale value, you can obtain a bigger top-up loan. If the car is old or highly depreciated, however, there may be limits on how large the top-up loan can be.
3. Loan-to-Value Ratio (LTV)
Loan-to-Value (LTV) ratio is the most important factor influencing the quantum you can avail in case of top-up car loan. LTV ratio is used to denote the proportion of your vehicle’s current value and the loan. Top-up car loans with LTV ratio of 100% will be approved by lenders, i.e., the amount equivalent to your vehicle’s current value or a share thereof can be taken.
For instance, if the cost of the car is ₹5,00,000 and the lender’s LTV cap is 80%, you qualify for a loan of ₹4,00,000 subject to other eligibility.
4. Your Creditworthiness
Just like your original car loan, your creditworthiness would play the greatest role in determining the amount you could borrow under a longer car loan. If you have good payment history and spotless credit report, then you will be able to borrow larger amount of loan.
The lenders take into account your financial health and credit record while sanctioning a top-up car loan. Good credit score and regular income make you a safe borrower, and this may prompt the lender to sanction a higher amount of top-up loan.
5. Repayment Capacity
That you have the capacity to repay the loan is perhaps one of the biggest determinants in terms of how much you’ll be able to borrow. Your income, existing debts, and expenses will be checked by lenders when deciding if you will be in a position to afford the new loan installment along with your existing debts.
If your finances are sufficient enough to pay the new EMI and your debt-to-income ratio is very low, then you would qualify for a higher top-up car loan. But otherwise, if your financials are weak, then you’ll be given a lower top-up loan or even rejected.
6. Relationship with the Lender
Trekkers liberal top-up loan amounts can be provided to traditional borrowers with good payment history. If you consistently make traditional car loan payments on time and are in good standing with the lender, it can offer you a bigger loan or improved terms.
7. Top-Up Loan Terms
The terms of the top-up car loan, including the interest rate, repayment tenure, and processing fees, will also determine how much you can borrow. The lenders may offer you variable terms for the top-up car loan depending on your credit history and the loan amount you wish to borrow.
How to Apply for a Car Loan Top-Up
It is mostly a formality to take a top-up car loan as it is an extension of your first loan. Here’s how you should go about it:
Check Eligibility: Before applying actually, you need to know whether you are eligible or not for a top-up car loan. Check whether your car is eligible for a top-up and also have a good credit history.
Call Your Lender: Approach your existing lender and inquire about getting a top-up loan on your car. Banks and finance companies will have some guidelines.
Submit Documents: You may have to produce documents such as income proof, identity, address proof, and value details of your vehicle.
Approval Process: Your existing loan balance, vehicle price, and your financial situation will be considered by the lender. Thereafter, they will approve or reject your top-up request.
Signing Agreement: You would be required to sign the loan agreement in acknowledgment of terms and conditions once your top-up car loan is approved, for example, fresh EMI and tenor of the loan.
Conclusion
Car loan top-up is a convenient banking service for all such customers who need additional money and would like to carry the outstanding of the original car loan in addition to your initial car loan. The money value, which you can avail in the form of top-up loan, would be based on the factors such as outstanding balance of original car loan, market value of the vehicle, credit history, and repayment ability.
You would need to go through your existing financial state prior to the utilization of a car top-up loan. You must know about the terms and conditions of a top-up loan and see if a top-up loan is even the most favorable choice for your pockets. In today’s digital age, using a loan app for used car can help evaluate your options more efficiently and give you better access to financial tools, including top-up loans.
Proper utilization of a car loan top-up can keep you saving money enough without compromising the pocket’s comfort for repayments of a loan. With your knowledge of the amount you have borrowed in an added car finance loan and what prompted you to borrow it, you will make the correct decision and your finance will be to your advantage.
