Top-Up loans

People take loans when they do not have money to pay for things. Any time you charge something on your credit card or fill out a loan application, you are getting a loan that you have to pay back.

But some people have money on hand, just not enough of it to pay for an entire item. That's where top up loans come in.


What Are Top-Up Loans?

There are two definitions for top up loans:

1) The first definition of a top up loan is a loan that you use in addition to paying for an item. For example, pretend you want to buy a car. Suppose you have £10,000, but the car costs £15,000. You can get a top up loan to pay for the remaining value, so that you are able to finance the entire car in one fell swoop but do not need to either take or qualify for the loan to do it.
2) The other definition of a top up loan is a loan that you take in addition to a loan you have already taken. An example of this would be a loan you take for your business. Let's say a bank provides you with £30,000 for your business, but you come up with an amazing business strategy that will require an additional £5,000. You would go to your bank and ask for a top up loan in order to finance the remaining half which is, essentially, asking the bank to add on to your existing loan total. With this definition, top up loans are almost always given by the bank that gave you the previous loan and not by a new lender.

The purpose of a top up loan in both instances is to get more money where money does not cover the entire costs. In some ways they are a risky practice - if you have not been able to pay back the previous loan, it may not be a good idea to extend the amount of your loan. Similarly, if you can pay for something mostly in case and simply need an additional financial supplement, perhaps it is a better idea to wait and see if you can gather the cash rather than take out a loan application and be forced to pay back interest rates.

However, a top up loan is something many people require, simply due to unforeseen expenses. You can get a loan amount for a specific project, vacation or payment you need to make but just because you assume it will cost x amount of pounds does not mean that it will equal exactly x.

Many people take top up loans on their homes. This is sometimes referred to as a "second mortgage" and it is always subordinate to the first mortgage (meaning that if you cannot pay either and default, the first loan gets paid off first).

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