How Combining a Loan Against Property with an Overdraft Can Save You Money?

By Anupama Deshpande | May 05, 2023

In India, taking a loan against property (LAP) can be a useful option for individuals who are looking to borrow a substantial amount of money at a lower interest rate than personal loans or credit cards. However, the process of applying for a LAP can be complicated, and many borrowers may be hesitant to take on additional debt.

When it comes to financial management, every individual aims to make the most of his money. In India, combining a loan against property with an overdraft is a popular strategy for those seeking to save money. LAP with OD facility technique can help borrowers in many ways, from reducing interest payments to increasing cash flow. In this article, we will discuss how combining a loan against property with an overdraft can save you money, and provide examples to illustrate the benefits of this approach.

First, let's understand what a loan against property is. It is a secured loan where the borrower pledges his property as collateral. This type of loan is usually offered at a lower interest rate than unsecured loans, such as personal loans or credit card loans. This is because the lender has a guarantee that if the borrower defaults, they can recover the outstanding amount by selling the pledged property.

Now, let's talk about an overdraft. An overdraft is a type of credit facility offered by banks where the customer can withdraw more money than what is available in his account, up to a certain limit. The interest is charged only on the amount used and for the period it is used. This facility is convenient for those who have variable cash flows and need money to bridge the gap between their income and expenses.

Smart Borrowing: How Combining a Loan Against Property with an Overdraft Can Save You Money?

Benefits of Combining LAP with an OD facility

Combining a loan against property with an overdraft can be a smart financial move for those who have a property as collateral and need access to flexible credit. Here are some ways how this combination can help save you money:

Reduced Interest Payments: As mentioned earlier, loan against property is offered at a lower interest rate than unsecured loans. By combining this loan with an overdraft, you can avoid paying higher interest rates on unsecured loans or credit cards. Additionally, interest on the overdraft is charged only on the amount used, making it a more cost-effective option.

For instance, let's say you have a property worth Rs. 50 lakhs and want to take a loan of Rs. 30 lakhs. You could either take a personal loan at an interest rate of 12% or a loan against property at an interest rate of 9%. By opting for a loan against property, you can save up to Rs. 90,000 in interest payments for a tenure of 5 years. By combining this loan with an overdraft, you can further reduce your interest payments as the overdraft interest rates are typically lower than personal loan rates.

Increased Cash Flow: With an overdraft, you have access to a line of credit that can be used whenever you need it. This means that you do not have to dip into your savings or investments to meet your financial needs. Moreover, you can pay interest only on the amount you use and not the entire overdraft limit. This helps you manage your cash flow better, and you can use the surplus money to invest in other avenues that yield higher returns.

For example, if you have an overdraft limit of Rs. 5 lakhs and you use only Rs. 2 lakhs, you will pay interest only on the Rs. 2 lakhs and not the entire limit. This way, you can utilize the remaining Rs. 3 lakhs to invest in a fixed deposit that earns an interest rate of 6%, thus earning you additional returns.

Suggested reading Should you go for Loan against Property (LAP) or Top up Loan?

How expenses get reduced when you apply for a LAP with an overdraft facility?

One potential strategy for reducing the expenses associated with a LAP is to go for LAP with an overdraft facility. An overdraft is a line of credit that is attached to a borrower's bank account, allowing them to withdraw funds beyond their account balance up to a specified limit. The interest is charged only on the amount that is withdrawn and for the duration of its utilization.

When applying for a LAP with an overdraft facility, the borrower can use the loan amount to pay off their high-interest debt, such as credit card bills or personal loans, and then use the overdraft facility to manage their day-to-day expenses. This can help to reduce the overall interest paid on the loan, as well as the monthly repayment amount.

Furthermore, an LAP with an overdraft facility also provides greater flexibility to borrowers. They can withdraw funds as and when needed, and they only have to pay interest on the amount that they use. This can be especially useful for individuals who have fluctuating expenses or irregular income streams, as they can access the funds they need without having to worry about making fixed repayments.

Another advantage of using an overdraft facility in conjunction with a LAP is that it can help borrowers to build their credit score. When the borrower uses the overdraft facility responsibly, i.e. making timely repayments, it can help to improve their creditworthiness. This can be beneficial if the borrower needs to take out additional loans in the future.

It is worth noting, however, that overdrafts come with their own set of risks. If the borrower withdraws more than their limit or fails to make timely repayments, they may be subject to penalty fees and high-interest rates. It is important, therefore, to use the overdraft facility responsibly and only withdraw the funds that are necessary.

Suggested reading 5 Tips & Tricks to Benefit you while Applying for LAP

Endnote on How Combining a Loan Against Property with an Overdraft Can Save You Money?

In conclusion, going for an overdraft facility when applying for a LAP can be a useful strategy for reducing expenses and managing debt in India. However, borrowers should be aware of the risks involved and use the facility responsibly to ensure that they do not accrue additional debt. With careful planning and responsible borrowing, a LAP with an overdraft facility can be an effective way to access the funds needed to manage expenses and improve financial wellbeing. Note that combining LAP with an OD can save you money in the long run. It offers a low-cost option for borrowing, reduces interest payments, and improves cash flow. However, before opting for this combination, it is crucial to assess your financial needs and repayment capacity. By doing so, you can make an informed decision that aligns with your financial goals and helps you save money.

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About Anupama Deshpande
Anupama is a Co-Founder of She is an MBA (Finance) and Chartered Financial Analyst (CFA). She also carries a Fellowship degree in Life Insurance Sector and is a Master of Computer Application (MCA). She is an expert in Finance Field with an experience of over 18 years on different managerial positions in finance industry including Stock Market, Depository and Mutual Fund Sectors. Apart from that she has remained for few years in the field of marketing as well. Her suggestions and advice for investments have been very useful to many people.
Her vast interest & expertise in the field of finance have encouraged her to write the articles so that others can also get benefitted out of them. She never loses any opportunity to learn and be creative. She is a valuable asset for & important resource to all those around her.