The need for the fund can arise at any point of time in a family or business. One of the best and easy options to meet the need of finance is to apply for a loan against property online or at a bank branch. The financial product loan against property (which is disbursed as a term loan) popularly termed as LAP has its own advantages and a few disadvantages. A borrower can also go for the overdraft facility to save his/her hard-earned money wasted in the payment of interest charged on the loan amount raised from a financial institution near you. The interest payable in the case of Overdraft is low in comparison to LAP.
As a borrower in need of money, you have the option to make a choice between the dual sources LAP or Overdraft available at the time of seeking a loan against property. In comparison to LAP, overdraft is more preferable. In the case of LAP, you can withdraw the complete amount of sanctioned loan and repay it with the interest charged in EMIs. You can choose the repayment tenure as per your convenience.
Let us here know more about LAP and Overdraft to understand how Overdraft can help you reduce the cost of borrowing.
Loan Against Property (LAP)
- LAP is a very popular financial product that helps you fulfill your requirement of fund.
- LAP can be availed by keeping your owned property (falling in the residential or commercial category) as collateral with the lender.
- It can be borrowed from a Bank or NBFCs.
- The sanctioned loan amount can be withdrawn in a single transaction or multiple transactions according to the need of finance.
- The interest is generally charged on the complete LAP sanctioned by the lender no matter whether you use part or complete amount.
- The loan raised against your property can be used for any purpose. There is no restriction to its usage.
- It is basically a term loan where the principal and interest is amortized by way of monthly installments called EMIs.
- The maximum tenure allowed is 15 years. One can choose the tenure as per his/her convenience of repayment. The fact is very clear. i.e. higher the tenure lower is the EMI, lower the tenure higher is the EMI.
- Easy to apply and requires less documentation.
- Speedy sanction and quick disbursement.
- It can be availed on a fixed or floating rate of interest.
- The interest can vary from bank to bank.
- Loan Against Property (LAP) is one of the best sources to raise the big sum to meet huge expenses like higher education of child, marriage or medical expenses.
- Generally, the loan amount allowed is equal to 50 to 60 percent of the property value used as collateral. There is the maximum cap which can differ from a lender to another lender.
- The lender also verifies the repayment capability from existing sources of income of the borrower. In order to increase income eligibility, co-borrowers can be added in the application.
- The document to be submitted by a businessman and a salaried applicant differs.
OVERDRAFT
- It is a facility provided by a lending institution in the finance sector, mostly Banks.
- It requires minimum documentation. Speedy and a few step process only.
- It may or may not require security as collateral.
- The amount of overdraft allowed depends upon certain terms.
- The allowed amount can be raised in part or full.
- The interest charged is only on the overdraft amount used by a user, which is the best advantage it provides to a borrower.
- It can be used for any purpose and has no restriction as far as the usage is concerned.
- You need to have a Bank account.
- You need to have a good Credit Score.
Both the facilities a LAP and overdraft has its own advantages and disadvantages. It can be availed depending on the type of fund need you have. But if you compare the payable interest, you will find overdraft a better option incongruence to Loan Against Property (LAP). The advantage of overdraft is that the interest is charged on the balance outstanding whereas in case of LAP in the form of EMI loan the interest is prefixed depending on the tenor. While overdraft can generally be withdrawn multiple times and whenever there is surplus funds the same can be utilized to reduce the outstanding. In case of LAP, the loan can be partially-prepaid (whenever there is surplus funds) but can not be withdrawn again (for that you would need fresh sanction or top-up loan). LAP is for the requirement of large amount while overdraft can take care of only small requirements. Also, LAP interest rate can be negotiated lower in comparison to Overdraft. However, the flexibility offered by Overdraft in terms of available drawable limit and interest savings (charged only on outstanding) makes it an ideal financial product for borrowers. Even in case there is a requirement of large sum for short term (or intermittent requirement) and the same is not available as unsecured Overdraft and therefore loan against property is the only option, one can check with the Bank whether the loan against property can be availed in the form of Overdraft.