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

An individual can have different options when it comes to financing a big purchase or dealing with some unexpected expenses. And those options include; an overdraft facility and Loan Against Property offered by financial institutions like Hero FinCorp.

These two are popular credit facilities offered by many financial institutions, as people can get access to funds easily. And if you are having trouble deciding between the two, we will go through the significant differences describing their meaning, features, and functionality. Let’s explore overdraft vs Loan Against Property in this article. This will help you make an informed decision.

Meaning of Overdraft and Loan Against Property

To begin with, let’s understand the meaning of overdraft loan. It indicates a credit facility that allows you to withdraw money from your current account even if your account balance has bottomed out. In case you need money for a short-term, such as paying educational fees or getting your car repaired, this option can help you.

When you opt for an overdraft facility, it means if you don't pay the used line of credit within the specified tenure, you might face a penalty and the repayment amount will increase with time. It is a good option in case of short-term cash flow issues.

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.

Also Read :   Rules To Follow While Taking A Loan Against Property

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.

Also Read :  Beginner’s Guide For Taking A Loan Against Property
 

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.