What is an Overdraft Loan Against Property?

Need funds for some urgent personal or business purpose? There are several credit options available today. Understanding your financial situation and requirement may help you select the best from among them. A loan against property and an overdraft loan against property are two such options that may suit your needs during any financial crisis. However, people tend to confuse these two credit tools. Let us now understand the difference between these two credit tools and their functionality.

Overdraft Loan Against Property

In the case of a loan against property, the funds are sanctioned by the lender against collateral. The funds are disbursed as lumpsum in your account and can be used freely for any expenses without any restriction. 

In an overdraft loan against property, the whole loan amount will not be disbursed immediately. The lender will open an overdraft account for you in which you will be assigned a limit (i.e. an approved LAP-OD loan amount). You can withdraw funds from this overdraft account, as and when the need arises. There is no restriction on the usage though. Another notable feature of operating an Overdraft Loan Against Property is that you can make any number of deposits back into the loan account when you have surplus funds; be it above your monthly EMI, and it counts as prepayment (there are no prepayment charges)

Difference Between Loan Against Property and Overdraft Loan Against Property

Particulars	LAP	Overdraft LAP
Line of Credit	The entire loan amount is disbursed for use at one go, which is beneficial for large-scale expenses, such as overseas education, medical expenses, wedding, etc	The approved loan amount can be accessed in parts, depending on when you need it, making it the best credit tool for expenses that come in phases
Security	A Loan Against Property is sanctioned against an asset that is pledged as collateral	The funds extended through the overdraft facility also depends on the value of your collateral
Interest Rate	Loans Against Property are secure loans and thus are offered at lower interest rates	Overdraft Loans Against Property, while being secure, carry a higher rate of interest because of the flexibility it offers
Repayment Options	One must repay the Loan Against Property following a pre-decided repayment schedule through EMI	There is a degree of flexibility here; borrowers can deposit any amount of money whenever they have surplus funds with no prepayment penalties
Interest Paid	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 amount

Final Words

We can see that both Loan Against Property and an Overdraft Loan Against Property have a clear defined function, role, and differences. Thus, understanding your own requirement and each of their unique offerings will help you select the right loan type to meet your financial needs. So, select the credit tool suiting you best to get funds for your need.