How often can you top up a loan? If you enter this question in a search engine, you will find many results that deal extensively with the topic of increasing credit. However, he will search in vain for a concrete answer to his question. The reason is obvious. No adviser knows to what extent a specific bank can meet its loan customers in individual cases with multiple loan increases. And there are no general rules according to which banks grant credit increases.
For this reason, the author of this article does not know how often your bank takes part in the top-up of the current loan, assuming creditworthiness. We can provide information and recommendations on the loan increase and suggestions on how often it is worthwhile to increase the loan.
When can you top up a loan?
Banks may handle the number of possible loan increases relatively loosely. But when it comes to one question, there are strict rules: how long does a loan have to run before a loan increase is approved? Most banks require a waiting period of 5 to 6 months. There may be exceptions in individual cases, for example if the credit customer has been working with the bank for a long time and a relationship of trust could be built up.
Or the customer can show that the additional financing requirement was caused by a real emergency. The reason for the relatively strict handling is simple. It’s about the reliability of the credit customer. Banks assume that credit customers do not have their finances well under control if more money is requested shortly after borrowing. For banks, this means an increased risk of default. The situation is different if a loan has been properly serviced for six months. The contractual and punctual payment of owed credit installments is a confidence-building measure towards the bank.
In these cases, banks do not anticipate loan defaults and are more willing to increase the loan or issue another loan.
How often should you top up a loan?
From the borrower’s point of view, credit increases or the arrangement of secondary loans should be handled with caution. It is better to postpone purchases until sufficient equity is available or the loan has been paid off. Those who constantly increase loan amounts restrict their financial scope and sometimes even run the risk of over-indebtedness. The bank will also not be thrilled if a lending customer operates at the limit of its economic capacity due to ongoing credit increases and the debt increases over time.
Credit increases and secondary loans should remain the exception and should not become the rule. A limitation to emergencies makes sense if the financing requirements cannot be shown differently.
Starting point for a credit increase
The television gives up the ghost, an electric stove fails or the car needed to go to work has total damage. These are unforeseen expenses. And the replacement procurement for the car, for example, is necessary and urgent. A longer vacation is planned, the purchase of an expensive notebook is a long-awaited wish, or instead of a Volkswagen, you would actually prefer to drive a Mercedes. Such things are nice, but not essential for life. In both cases, further debt alongside existing loans is not optimal. It is better to finance replacement purchases or requests with your own funds.
If you can only realize long-cherished wishes with the help of additional borrowing, you should simply wait until you have enough money. This is not possible with necessary replacement purchases. If equity is not enough, the only way is through more credit.
There are four options for an additional loan:
- An increase in the remaining credit from the original lender.
- Two side by side loans from the original lender mostly this will be the house bank.
- An additional loan for new purchases from another bank.
- A debt rescheduling loan from another bank, with which existing loans can be repaid and the planned purchase can also be financed.
Since this article is about the issue of increasing credit from the original lender, we want to focus primarily on the first two case groups.
Top up loan or second loan
Increasing an existing loan or granting an additional loan is part of customer inventory management. Customer loyalty is important in the highly competitive lending business, which is why banks will always be willing to provide existing customers with additional money. However, there is a hurdle – the current credit rating of the credit customer.
Whether topping up a loan or a second loan, a new credit check is always required through information from credit agencies and through an assessment of economic performance. In particular, the freely disposable income must be sufficient to pay the installments for the increased loan amount.
If the credit customer overcomes the hurdle of the credit check, it is about which solution is the cheapest one. In the case of a real credit increase, the effective interest rates for the new total amount are generally based on the current effective interest rates. A new credit contract is concluded for the newly agreed loan amount with possibly changed terms.
The two-credit solution looks different. Here the first loan agreement remains, including the originally agreed effective interest rates. The current interest rates are only valid for the additional amount over which a new credit agreement was concluded.
The following therefore applies from an economic point of view:
If the effective interest rate at the time of the increase is lower than when the original loan was taken out and if this interest rate is offered, a summary of the increase in credit is more favorable for the borrower. If the effective interest rate has increased, it is advisable to take out a second loan. In the second alternative, the borrower provides monthly capital service on two different contracts with different interest rates.
How often can you top up a loan?
The number of possible loan increases during an ongoing loan is usually not restricted from the outset. However, too many requests for credit increases in a row can indicate that borrowers do not have a clear view of finances. Banks will then be more reluctant to approve them.
What are the alternatives to increasing the loan?
Alternatives to a credit increase are taking out a second loan from the same or a different bank or taking out a debt rescheduling loan for the desired higher amount. A debt rescheduling with another bank can be worthwhile according to a rule of thumb if the nominal interest rate of the existing loan is higher than the interest rate offered by the third party bank.
Banks behave differently. Some banks say that they can increase their credit at any time. As a rule, however, five to six months must have passed since the original loan was taken out.