Overdraft vs Loan Against Property: Meaning, Features, and Functionality

Meaning of Overdraft and Loan Against Property

Now, let's move on to the Loan Against Property (LAP). It is a secured loan we provide against the collateral (house/flat/commercial property). It is a long-term credit facility, so a large amount of money will be available to you. With a LAP, there are no end-use restrictions; you can use the amount for any purpose, for instance, business expansion, home renovation, education, or medical expenses. The amount of loan we sanction is based on the value of the property you pledge as collateral.

Features of Overdraft and Loan Against Property

Both overdraft and Loan Against Property have their benefits, so let's take a look at them -

Overdraft

1. Flexibility

   An overdraft is a flexible credit facility, so you can repay the money as you use them during the repayment tenure.

2. Interest on the utilised amount

   You will only have to pay interest on the amount you use regardless of the pre-approved limit.

3. Quick availability of funds

   As you know by now what overdraft loan is (pre-approved credit facilities), you can use them as for urgent needs. Notably, overdraft loans are are available almost instantly, making it an ideal option for short-term cash flow issues.

Loan Against Property

1. Lower Interest Rate

   A Loan Against Property is a secured loan, which comes with a lower interest rate as compared to unsecured loans. This is because you pledge your property, and in return, you get a relaxation on the rate of interest in LAP.

2. Higher Loan Amount

   The loan amount sanctioned in Loan Against Property is usually higher as compared to overdrafts, as it is based on the value of the property. So the higher the property value, the more can be your loan amount.

3. Longer Tenure

   The tenure for Loan Against Property can go up to 10 years, making it a suitable option for long-term financial requirements.

The functionality of Overdraft and Loan Against Property

Overdraft

1. Short-Term Credit Facility

   Overdrafts are short-term credit facilities that provide temporary relief in case of cash flow issues. So if you are thinking of a long-term solution, this is not the option you should go for.

2. No Restrictions on Usage

   There are no restrictions on the usage of funds you get through overdraft facility. It means you can use it for any purpose.

3. Unsecured Loans

   Overdrafts are unsecured loans, and they do not require any collateral. So your valuables will remain safe.

Loan Against Property

1. Long-Term Credit Facility

   Our Loan Against Property is a long-term credit facility that provides a substantial amount of money for various purposes. The loan amount you can avail is higher than the overdraft limit.

2. Fixed Repayment Schedule

   Loan Against Property comes with a fixed repayment schedule, which means your repayment schedule won't change no matter how and when you use your loan amount.

3. Secured Loan

   A Loan Against Property is a secured loan, so you'll need to provide collateral. At Hero FinCorp, we'll check your property value and give you the maximum loan limit.

Conclusion

Both overdraft and Loan Against Property are credit facilities that serve different purposes and have their own set of features and functionality. Overdrafts are ideal for short-term cash flow issues and provide quick availability of funds. However, they come with a higher interest rate and are unsecured loans. On the other hand, a Loan Against Property is a long-term credit facility that provides a substantial amount of money for various purposes like business expansion, education, and medical expenses, among others. It has a lower interest rate and is a secured loan, and comes with a fixed repayment schedule.

So, what you need to do is assess your financial requirements, repayment capacity, and the purpose of availing credit before choosing between an overdraft and a Loan Against Property. A careful evaluation of your financial situation and goals can help you make an informed decision and choose the right credit facility for your needs.