Overdraft loans against property enable individuals to access funds over and above their regular account balance by pledging their property as collateral. While this facility can be helpful in times of need, it is important to use it responsibly, as interest costs can accumulate quickly if not managed properly.
By incorporating careful management practices, individuals can leverage such loans judiciously without risking their financial health. This article shares actionable strategies that applicants can implement to manage the loan against property overdraft facility effectively. Following structured guidelines can help us use the funds responsibly to address temporary needs without losing control and falling into debt traps.
Strategies for Judicious Management of Overdraft Loans
Here are some key tips applicants should adopt to manage overdraft loan against property withdrawals carefully:
1. Limit Usage Only for Urgent and Short-Term Requirements
Using LAP overdrafts for non-essential expenses over extended periods is not advisable, given the high interest charges typically starting from 9%* or higher. Limit usage only to pressing needs like:
● Temporary business working capital to manage market downturns
● Critical medical treatments
● Making home/vehicle repairs that are urgent
In such cases, use the overdraft selectively for 30-60 days only. Once the pressing requirement is met, switch to less expensive funding options to repay the loan quickly.
2. Withdraw Only What You Need
Review the exact financial gap that necessitates accessing the overdraft facility. Then, withdraw only the specific amount needed rather than blindly borrowing the maximum limit allowed. This avoids unnecessary interest costs on excess funds.
For instance, if the overdraft limit allows a withdrawal of ₹5 lakhs but your current need is ₹ 80,000 for a medical procedure, withdraw only ₹80,000. Avoid using the remaining ₹4.2 lakhs simply because it is available. You will needlessly pay interest on it.
3. Prioritise Repaying Soon as Possible
When managing scarce funds, most applicants make minimum payments and revolve credit endlessly. This is irresponsible overdraft usage; interest costs balloon rapidly even if you repay only the minimum 5-10%.
Instead, proactively trim expenses, liquidate assets, or direct incoming funds exclusively for repayment after short-term needs are met. Treat it as a crisis and channel repayments via the cheapest sources quickly once emergencies are managed. Even small incremental additions help retire debt faster and substantially reduce associated interest.
4. Avoid Renewing/Rolling Over Credit
Avoid renewing or extending your overdraft facility unless absolutely necessary because this can increase your overall interest burden. Focus on repaying the amount as soon as your financial situation improves and consider reopening the facility only if another genuine need arises.
5. Prepay if Cash Flows Improve
As income stability returns or cash inflow boosts after utilising the overdraft, prioritise using the funds to prepay the loan. Many applicants wait for the tenure end to complete repayments, which increases interest costs. Banks and non-banking financial companies (NBFCs) allow part or full prepayments without penalties.
Even small incremental prepayments can change your amortisation schedule. For example, adding ₹15,000-20,000 monthly against the required Equated Monthly Instalment (EMI) of ₹ 45,000 can repay the loan years faster and reduce total interest paid substantially.
6. Maintain Liquid Investments
Keep some funds invested in liquid instruments easily encashable to meet emergencies instead of instantly tapping expensive overdraft limits. For example, keep ₹1-2 lakh in sweep-in fixed deposits that allow easy breaking with nominal penalties. Or park surplus income monthly in short-term debt funds that can be redeemed anytime.
This liquidity buffer reduces the tendency to tap overdrafts except in genuine cases warranting urgent funds. Ensure such investments are aligned with your risk profile.
Warning Signs of Irresponsible Usage
While the above tips help manage overdrafts judiciously, applicants should also remain vigilant against signs indicating irresponsible usage behaviour:
● Depending excessively on overdraft instead of working capital for business needs
● Diverting loan funds to discretionary spending frequently
● Making only minimum payments while revolving high-cost credit
● Paying other obligations while allowing interest to accumulate
● Taking longer tenures without efforts to repay quicker
Observing such patterns should trigger urgent corrective actions, such as cutting down expenses, improving earning capacity, liquidating assets or at least prepaying part amounts. If debt repayability worsens significantly, seek professional help.
Conclusion
Overdraft borrowing enables convenient access to funds, but only disciplined usage preserves financial health. The right approach is to use it selectively for short durations, minimise withdrawal amounts based on current need, and repay quickly through cash surpluses instead of renewing endlessly. If you are considering an overdraft loan against property, Shriram Finance offers user-friendly tools like eligibility and EMI calculators to help you understand your borrowing capacity and plan repayments effectively. Leveraging such resources can support informed financial decisions and responsible management of your loan against property.
Staying alert against signs of irresponsible behaviour also helps rectify issues before one's finances spiral out of control. Implementing such practices ensures overdraft users reap the benefits of an overdraft loan without falling into debt traps.
