What is top-up financing?

In Saudi Arabia, top up financing is a service offered to customers who have an existing financing with their bank. A customer’s eligibility is calculated in the same way it is done for a new financing (some banks may offer customers a lower profit rate based on their internal policy); the current outstanding principal amount is subtracted from the eligibility amount and the difference is deposited into the customer’s account.  The customer is asked to sign a new financing agreement and is responsible for paying back the new eligibility amount and the new profit (based on the rate which the customer is eligible for).

[Related: The guide on qualifying for a family loan]

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When is it a good idea to get top-up financing?

The idea for top up financing emerged to cater to those individuals who are in need of extra cash whilst having an existing financing.  But be careful, because you may over burden yourself with excessive debt. So make sure you have a genuine reason and that you really need the extra cash before toping up your financing.

Am I eligible for top-up financing? What are the general requirements?

Only customers who have paid back a minimum of 20% of their initial financing principal are eligible for the top-up feature. For example, if the customer borrows 100,000 riyals for 5 years with a profit amount of 8,000 riyals, they will be eligible once they have paid back at least 20,000 riyals in principal – the timing may vary according to the instalment amounts. This is according to newly issued consumer financing regulation by the central bank of Saudi Arabia (SAMA).

If a customer really needs the additional cash and has not yet paid back the 20% principal amount, an option of doing a “partial settlement” is also available, to help the customer to reach this minimum requirement.  A partial settlement is a payment which is one or more multiples of an instalment amount (for example if the instalment amount is 2,500 riyals, you can pay 10,000 riyals which will count as 4 instalments)

Are there any specific rules that control how banks give top-up financing?

Apart from the main regulation for eligibility of top-ups, banks may set additional requirements according to their own internal policy. So it is always a good idea to ask about your bank’s requirements before applying for any additional financing.

Factors such as the customer’s payment history, current salary as well as his or her employer profile may be considered at the time the customer makes an application for top-up financing.

What should I be aware of when getting top-up financing? Any extra costs or additional fees?  

Firstly, the most important thing to bear in mind is that if you take top-up financing, you will be increasing your debt amount and your debt repayment duration. So only apply for this if you really need it.

Also, always ensure that you check with your bank regarding their internal policies and requirements before signing a financing contract.

Know your rights and remember that SAMA’s consumer finance regulation (issued July 2014), requires banks to inform their customers at least 60 days in advance before they make any changes to their existing policies and rules, especially the rules that can affect agreements and contracts with the bank.  If the customer wants to, he or she has the option of ending the agreement with the bank within 10 days of the communication.

Secondly, you have to be aware of the profit rate you will be charged for top-up financing. This depends on your bank’s internal policy so ask about it before signing a new financing agreement.

Finally, top-up financing is not considered as secondary financing. This means that if you do take out top-up financing, you will be required to close your current financing and sign an entirely new contract. Bear in mind that some bank may charge you an early settlement fee when this happens. But it varies from bank to bank.

Is there any disadvantage to me when getting top-up financing?

The main thing to note when getting top-up financing is that you will sign a new financing agreement which means you will have a larger amount to repay and a longer tenor or repayment period. So do not take this for granted and do not overburden yourself. Top-up financing was created to help those who need access to large sums of money; but should be availed only if the requirement is genuine and the customer has the ability to pay back and close the debt within the agreed time frame.