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Overdraft vs Loan Against Property: Which Is Better?

Loans Against Property
22 January 2025
Manya Ghosh
126,391

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Meaning of Overdraft Loan
Meaning of Loan Against Property
Key Differences: Loan Against Property vs Overdraft
Features of Overdraft Loan
Features of Loan Against Property
Conclusion
Frequently Asked Questions (FAQs)

An individual can have different options when it comes to financing a big purchase or dealing with unexpected expenses. In the current lending environment, these options primarily include a flexible overdraft facility and a structured Loan Against Property (LAP) offered by regulated NBFCs like Hero FinCorp.

These two are popular credit facilities, but their suitability depends on your cash flow needs and the Reserve Bank of India (RBI) directives on floating-rate loans. If you are deciding between a loan against property vs overdraft, let’s explore their meaning, features, and the latest regulatory shifts to help you make an informed decision.

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Meaning of Overdraft Loan

An overdraft loan is a revolving credit facility that allows you to withdraw funds from your account beyond the existing balance, up to a pre-approved limit. It acts as a financial cushion where you only pay interest on the amount you actually use and for the duration it remains overdrawn. Many regulated NBFCs offer a specific variant called an "Overdraft Against Property" (ODAP), which uses your real estate as collateral to provide a higher limit at a lower interest rate than unsecured variants.

Meaning of Loan Against Property

A Loan Against Property (LAP) is a secured term loan where the borrower pledges residential, commercial, or industrial property as collateral. Unlike an overdraft, a LAP is a lump-sum disbursement. At Hero FinCorp, as a regulated NBFC, we provide LAP amounts ranging from ₹20 Lakhs to ₹7.5 Crores, based on a professional valuation of the pledged property and a Loan-to-Value (LTV) ratio of up to 75%. It is a structured credit facility with fixed repayments over a long tenure.

Key Differences: Loan Against Property vs Overdraft

In this year, the difference between od against property and LAP lies in how they impact your cash flow and interest burden.

Parameter	Overdraft Against Property	Loan Against Property (LAP)
Disbursal	Revolving credit line; multiple withdrawals.	One-time lump-sum disbursement.
Interest Charged	Only on the Utilised Amount.	On the Total Disbursed Principal.
Repayment Mode	Flexible; pay back and re-draw.	Fixed Monthly EMIs (Principal + Interest).
Interest Rate	Typically 1%–2% higher than LAP.	Lower rates (starting at 11% p.a.).
Tenure	Usually 12 months (Renewable).	Long-term (Up to 15 years/180 months).
Foreclosure	No charges for non-business use.	No charges on floating rates (from Jan 2026).
End-Use	Best for working capital & urgent gaps.	Best for long-term capital investments.

Features of Overdraft Loan

Interest Efficiency: You only pay interest for the days the funds are withdrawn. If you deposit money back, the interest stops immediately.
No Mandatory EMIs: You can choose to pay back the principal at your convenience within the tenure, provided you service the monthly interest.
RBI Multi-Bank Rule: Borrowers with loans up to ₹10 Crore can now maintain overdraft facility against property accounts with any bank, not just their primary lender.
Quick Liquidity: Ideal for business owners who face seasonal cash flow fluctuations.

Features of Loan Against Property

High Funding Potential: Secure large sums up to ₹7.5 Crore depending on property valuation and income stability.
Extended Repayment: Enjoy tenures up to 15 years, ensuring your EMIs remain affordable.
Tax Benefits: If the LAP is used for business, the interest paid can be claimed as a business expense under the Income Tax Act.
Property Ownership: You retain full use and ownership of your property while leveraging its value for growth.

Conclusion

Both overdraft against property and LAP are powerful financial tools. If your need is for a "safety net" to manage daily operations, an od against property is superior. However, if you have a defined, large-scale expense, a structured Loan Against Property from a regulated NBFC ensures lower interest costs and a disciplined repayment path. Assess your 2026 cash flow projections and refer to the Key Fact Statement (KFS) provided by your lender before signing.

Frequently Asked Questions (FAQs)

Can I Use A Residential Property For A Business Overdraft?

Yes. Most regulated NBFCs accept residential, commercial, and even industrial property as collateral for an overdraft facility against property.

What Are The Interest Rates For LAP?

At Hero FinCorp, LAP interest rates typically start from 11% p.a. and can go up to 17% p.a., depending on the property type and credit profile.

Are There Foreclosure Charges On LAP From Jan 1, 2026?

According to RBI/2025-26/71, no foreclosure or part-payment charges can be levied on floating-rate loans sanctioned to individuals for non-business purposes after Jan 1, 2026.

How Long Does It Take To Process An OD Vs. A LAP?

Overdrafts are generally faster if you have an existing relationship with the lender. A LAP typically takes 7 to 10 working days due to technical and legal property verification.

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