Have you got an existing loan that you’re thinking of topping-up? If so, you could end up paying different types of fees that you didn’t think would apply.

A top-up loan is considered a brand new loan

When you top-up your loan, banks consider it a brand new loan that you are taking out. This means that you will be required to pay new processing fees on the top-up amount and in some cases new insurance fees as well. It doesn’t end there though. When you take out a top-up loan, you will be considered as having settled your initial loan amount early. The bank will charge you an early settlement fee and this is capped at a maximum of 1% of the loan.

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[Related: How can you save on comparing your loan? #CompareToSave | Guide to personal loans in the UAE | 10 frequently asked questions: Loans in the UAE ]

Below is an example of how much you could end up paying in fees based on an outstanding loan amount of AED 100,000 if you request a top-up amount of AED 50,000:

Fees applicable on top-up loans Amount in dirhams
Processing fees (1% of top-up amount) 500
Insurance fees (1% of top-up amount) 500
Early settlement fees (1% of initial loan amount) 1,000
Total 2,000

Check for differences in interest rate

When you top-up your loan, remember that the interest rate your bank charges you may be different to the one you were paying on your initial loan amount. So before you go ahead with your application, ask your bank what the effective rate will be and how this will impact your overall repayment instalments.

Editor’s tip: Top-up loans can often be a convenient way to get some extra cash on top of your existing loan. But remember that there are fees applicable every time you top-up your loan. Always make sure to include these fees in your costs and confirm the interest rate you will be charged too. Finally, you should really only go for a top-up loan if you have a genuine need for the extra funds. Otherwise, you will be increasing the size of your debt, the cost of your loan and your loan tenor. Consider all these factors.