{"id":19854,"date":"2023-08-29T03:33:00","date_gmt":"2023-08-29T03:33:00","guid":{"rendered":"https:\/\/tata-blog.osian.dev\/blog\/?p=15145"},"modified":"2024-06-12T18:04:13","modified_gmt":"2024-06-12T12:34:13","slug":"home-loan-overdraft-facility-pros-and-cons","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/loan-for-home\/home-loan-overdraft-facility-pros-and-cons\/","title":{"rendered":"Home Loan Overdraft Facility: Pros and Cons"},"content":{"rendered":"\n

Thinking of prepaying your home loan? Prepaying your loan has two vital benefits: It shortens your loan tenure and saves you a lot on interest outgo. However, directing more funds towards your loan repayments can shrink your cash flow for emergencies. Not to mention, some lenders may charge fines or penalties for making prepayments.<\/p>\n\n\n\n

One option to overcome these challenges is opting for a home loan overdraft facility. But is it better than conventional housing finance options?<\/p>\n\n\n\n

Let\u2019s analyse it by weighing the pros and cons.<\/p>\n\n\n\n

How does the overdraft facility work?<\/strong><\/h2>\n\n\n\n

Before we move on to discuss whether it\u2019s good for you or not, let\u2019s understand how home loan overdraft<\/a> works.<\/p>\n\n\n\n

With an overdraft facility, you\u2019ll get a dedicated savings\/bank account, which will be linked to your loan account. Any amount you deposit in this account, which is over the specified EMI amount, will be treated as prepayment. However, the amount will be treated as a prepayment as long as it\u2019s still deposited. During the loan tenure, you can withdraw and deposit this surplus amount anytime.<\/p>\n\n\n\n

Like traditional housing finance options, the surplus amount deposited will be deducted from the remaining principal amount to calculate the interest payable. The interest is calculated daily and will be debited at the end of the month.<\/p>\n\n\n\n

Moreover, if you withdraw a sum that exceeds the account balance, you\u2019ll be charged interest only on that amount and for the period for which it was withdrawn.<\/p>\n\n\n\n

Additional Read: <\/strong>Top Things to keep in mind before prepaying Home Loan<\/a><\/p>\n\n\n\n

Pros of overdraft facility<\/strong><\/h2>\n\n\n\n

An overdraft facility allows seamless prepayment of a loan to buy a house, allowing you to shorten your loan tenure and reduce the interest payable.<\/p>\n\n\n\n

With it, you have the provision of withdrawing the surplus amount during financial or medical emergencies.<\/p>\n\n\n\n

Unlike traditional loans, there is no penalty or fine for prepaying your loan.<\/p>\n\n\n\n

The surplus amount can be deposited or withdrawn at your convenience, thereby offering excellent liquidity.<\/p>\n\n\n\n

Cons of overdraft facility<\/strong><\/h2>\n\n\n\n

In contrast to traditional housing finance options, lenders charge relatively higher home loan interest rates<\/a> for the overdraft facility. Thus, loans with an overdraft facility are a slightly expensive option.<\/p>\n\n\n\n

The surplus amount is not eligible for tax deduction under section 80C of the Income Tax Act.<\/p>\n\n\n\n

Also, if you don\u2019t have a regular influx of surplus income, managing an overdraft facility can get a bit challengiApply for Housing LoanApply for Housing Loanng.<\/p>\n\n\n\n

Lastly, you can easily make money through interest by investing your surplus income in a savings account or fixed deposit. Therefore, using your surplus income to prepay your loan may not always be a financially sound move.<\/p>\n\n\n\n

Additional Read: <\/strong>Dos and Don\u2019ts for a Home Loan Prepayment<\/a><\/p>\n\n\n\n

In conclusion<\/h3>\n\n\n\n

Before settling for an overdraft facility, it is essential to conduct a cost-benefit analysis. Analysing this will help you determine if the amount saved on prepayments is more than the cost associated with a traditional loan.<\/p>\n\n\n\n

If you\u2019re looking for a home loan<\/a> to buy a house, look no further than Tata Capital. Our loans are an ideal solution to all your home-buying requirements. We offer attractive interest rates, which you can enjoy easily with our simple application process, quick disbursals, and minimal documentation. Check your home loan eligibility on Tata Capital\u2019s website.<\/p>\n\n\n\n

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Apply for Housing Loan<\/a><\/div>\n<\/div>\n<\/div>\n\n\n\n
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Thinking of prepaying your home loan? Prepaying your loan has two vital benefits: It shortens your loan tenure and saves you a lot on interest outgo. <\/p>\n

Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":20059,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[25],"tags":[],"class_list":["post-19854","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-loan-for-home"],"yoast_head":"\nHome Loan Overdraft Facility: Pros And Cons - Tata Capital Blog<\/title>\n<meta name=\"description\" content=\"With this home loan overdraft facility a borrower can deposit additional funds in the home loan account. 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