Borrowing More on a Loan You Already Have

What a top-up really is

Installment loans have a fixed amount, so there is nothing to draw on once the money is paid out. When a lender offers existing borrowers more money, it usually writes a new loan for the old balance plus the new cash, and uses part of it to pay off the old loan. Regulation Z calls this a refinancing: the old obligation is satisfied and replaced by a new one, which is a new transaction requiring a complete new set of disclosures.

You can do the same with a different lender, which is the same transaction in practice. Either way, read the new Truth in Lending disclosure as if the loan were brand new: amount financed, finance charge, APR, number of payments and any prepayment terms. Refinancing a personal loan covers refinancing for a lower rate; this page is about refinancing to borrow more.

Sizing the new loan

The new amount has three parts: the payoff of the old loan, the cash you need, and any fee the lender deducts.

1. 1 Get a payoff quote. It is the balance plus the interest that has built up since your last payment, good through a stated date. On a $10,325.29 balance at 14%, interest runs at about $4 a day.
2. 2 Add only the cash you can document. A refinance is an easy moment to round up. Every extra $1,000 at 14% over 48 months adds $27.33 to the payment.
3. 3 Gross up for a deducted fee. Divide the payoff plus cash by one minus the fee rate. The amount to request calculator does this; covering fees in the loan amount explains it.
4. 4 Choose the term on purpose. The offer may default to a full new term. Ask for one that ends close to the old loan's end date.

Worked example: top-up or a second loan

You took $15,000 at 14% for 48 months. The payment is $409.90. After 18 payments the balance is $10,325.29 and 30 payments remain, with $1,971.62 of interest still to come. You need $5,000 more, so the new money plus the payoff is $15,325.29. The table shows what each path costs above that sum.

The full reset is the costliest path by far. It cuts the payment by about $175 against the two-loan path, but adds 18 months and about $2,690, of which $806.59 is the fee. The top-up that keeps the old end date and charges no fee costs the least, even against a second loan, because all the money is priced at 14%. The rate on the extra money, the fee and the term matter more than whether you call it a top-up.

What happens to the old loan

• Who pays it off. Your current lender closes the old loan inside the new one. A new lender may pay the old one directly or send you the money to do it. If the money comes to you, pay the old loan at once.
• Keep paying until it is closed. Make any payment due before the payoff posts, then confirm the account shows a zero balance and stop the old automatic payment.
• Check for a prepayment charge or rebate. The old disclosure says whether a penalty applies, or, for loans with precomputed interest, whether you are entitled to a rebate of unearned interest. See prepayment penalties.
• Fees already paid stay paid. An origination fee on the old loan is not refunded, so refinancing soon after borrowing pays a second fee on much of the same money.

When borrowing more this way makes sense

A top-up fits when the new rate is no higher than what you would pay for a separate loan, the fee is low or zero, and you can keep the end date near the old one. It also helps when one payment is easier to manage than two. It fits poorly when the lower payment comes only from a reset term, or when you are borrowing more to cover payments you are struggling to make.

Questions people ask