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Loan Against Property and Overdraft Loan are popular terms in the mortgage sector, but their meaning and functionality can often confuse prospective borrowers. Here are what both loan types mean:
- Loan Against Property: This loan type facilitates the sanction of a large sum against a pledged collateral, which in this case is an immovable asset, namely a property you own.
- Overdraft Loan: An overdraft loan allows you to borrow from your account even in the advent of a zero-balance situation. Above that, borrowers have to pay interest only on the amount used by them.
Now that the meaning of a vanilla overdraft loan is clear, you will understand what the overdraft facility on a Loan Against Property means.
When the Overdraft Loan Against Property facility is extended to you, you are essentially allowed to access the sanction amount in slabs, as per your need and convenience. Your lender opens a separate overdraft account in which the loan amount is disbursed in parts, upon your preference.
Another notable feature of operating an Overdraft Loan Against Property is that you can make any number of deposits back into the loan account; be it above your monthly EMI, and it counts as prepayment. However, the most important aspect of this credit facility is that you pay interest only on the portion of the loan amount that you’ve requested and use, unlike the regular Loan Against Property.
Features and Benefits of an Overdraft Loan Against Property
Borrowers do not have to worry about facing a cash crunch, as they can withdraw from their predetermined loan sanction whenever they please, depending on when an expense arises.
Higher Interest Savings
Borrowers don’t have to pay blanket interest on the entire loan sum sanctioned to them. As they can seek the loan sum in parts, they pay interest only the amount they have used and not overall.
No Part-Prepayment Charges
When borrowers repay the amount borrowed through the overdraft credit line, they don’t have to bear additional part-prepayment charges. Borrowers can make as many payments towards the borrowed loan sum, directly reducing their repayment amount.
With the function and role of both loan types clearly defined, what remains are the key differences between a Loan Against Property and an Overdraft Loan Against Property. Understanding their unique offerings will help you select the right loan type to meet your needs.
|Loan Particulars||Loan Against Property||Overdraft Loan Against Property|
|Credit Line||The entire sanction amount is disbursed for your use at one go, which is beneficial for large scale expenses, such as overseas education||The approved loan amount can be accessed in parts, depending on when you need it, making it ideal for expenses that come in phases|
|Security||A Loan Against Property is sanctioned against an asset that is pledged as collateral||The credit line extended to you through the overdraft facility also depends on the value of your collateral|
|Interest Rate||Loans Against Property are secure loans, and hence enjoy lower interest rates||Overdraft Loans Against Property, while being secure, are still charged a higher rate of interest because of the flexibility it offers|
|Repayment Obligations||One has to repay the Loan Against Property following a pre-decided repayment schedule through EMI payments||There is a degree of flexibility allowed in the repayment of the loan; borrowers can deposit any amount of money whenever they have surplus cash, with no prepayment penalties|
|Interest Outflow||Borrowers must pay interest on the whole loan sanction as it was disbursed into their account||Borrowers only pay interest on the loan amount they have utilized and not on their whole credit limit at one go|
Note: Bajaj Housing Finance offers selective Flexi-Loan schemes available to eligible applicants. For more information, please visit your nearest branch or connect with our customer services.
*Terms and conditions apply
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