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Tata Capital > Blog > How to Reduce Net Interest Payment with OD Facility?

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How to Reduce Net Interest Payment with OD Facility?

How to Reduce Net Interest Payment with OD Facility?

Are you tired of making high interest payments on your loans? Then, overdraft facility against property can be of your interest.

OD facility against property is a type of loan where you can borrow money against the value of your property. With an OD against the property, you can access funds as and when you need them, up to a pre-approved limit. It has a higher sanction amount with a longer tenure of repayment.

But should you opt for this facility? And how is it beneficial in reducing net interest payment? Keep reading for a better understanding.

What is an OD Facility against the property?

An overdraft facility against property is a loan where the borrower can withdraw funds up to a limit, usually determined by the value of the property pledged as collateral.

It is an attractive option if you need immediate cash flow but want to avoid high-interest payments. One of the benefits of an OD against property is that it allows you to use the funds for any purpose, including business or personal expenses.

Additionally, borrowers only pay interest on the amount withdrawn, rather than the entire limit of the facility. It means that if you only use a portion of the available overdraft amount, you can save money by only paying interest for the amount you use.

How OD facility against property is beneficial in terms of interest payment?

When it comes to reducing net interest payments, an overdraft facility against the property is the most viable option. The interest rate for an OD loan against property is typically lower than other types of loans as the lender has the security in the form of the borrower’s property.

Although the interest rate for an OD against property varies depending on the lender, the amount borrowed, and the borrower’s creditworthiness.

Additionally, the overdraft against property interest rate is often variable, as it can fluctuate with the market and potentially decrease over time.

It is a great way to reduce your net interest payment because you only pay interest on the amount you withdraw. It means you can keep the unused amount in your account and only pay interest on the amount you use.

How can an OD facility help reduce net interest payments?

OD facility helps in reducing net interest payments in the following ways:

1. A loan against property overdraft facility can reduce net interest payments by allowing you to use your surplus funds to offset the interest charged on the outstanding loan amount.

2. Any surplus funds deposited into your account will be treated as a prepayment of the balance due on the loan, which will lower the interest rate.

3. Another way to use an OD against property is by drawing from it just before the bill due date. It reduces the interest outgo as the amount drawn from the OD facility is considered as payment towards the outstanding loan amount.

4. Since OD against property has lower interest rates than regular loans, you can also use it for debt consolidation. You can repay your existing loans using the amount from the overdraft limit and repay the OD loan bearing lower interest rates.

How to get started with an OD facility?

If you are interested in reducing your net interest payments with an OD against property, follow the following tips:

1. The first step is to check with your bank if they offer this service.

2. Once you have confirmed that they do, you will need to apply for it and provide any necessary documentation. When using an OD facility, it’s important to use it smartly and only when necessary.

3. Another way to do this is by drawing from the facility just before the bill due date, which can reduce the interest outgo.

4. Additionally, be aware of the interest rate charged by your bank and how it is calculated. The formula for OD interest rate using the average daily balance method is as follows:

OD Interest = A/N * R/P

wherein,

– A is the amount overdrawn

– N is the number of days the amount was overdrawn in a billing period

– R is the rate of interest

– P number of periods per year

5. Finally, remember that an OD against property offers more liquidity compared to other loans. You can withdraw money up to an agreed limit and do it as often as you need.

Wrapping up

An OD against property is a valuable tool for reducing net interest payments. By allowing you to borrow funds as needed and only pay interest on the amount borrowed, keeping the property as collateral, an OD facility can help you manage your cash flow more effectively and avoid unnecessary interest charges.

Additionally, the flexibility and convenience of an OD facility like longer repayment tenure, quick approval and high sanction amount make it a popular choice even among small and medium-sized enterprises.

If you are interested in exploring the benefits of an OD facility for your business or personal advantages, work with Tata Capital to find the best solution for your needs.

You can avail of this facility with amounts ranging from ten lakhs to three crores at attractive interest rates and repayment tenure of up to 15 years.

Visit the website to get detailed information on Tata Capital’s OD facility.

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