February 09, 2024

Plot Loan for Land Purchase in India

Hello, aspiring landowners!

Purchasing land in India is a dream for many. It’s a sign of prosperity and an investment for the future. Whether you aim to build your dream home, use the land for agricultural purposes, or hold it as an investment, the first step is acquiring the plot. However, the financial aspect of buying land can be daunting for many. This is where a plot loan comes into play. In this blog, we delve into the essentials of plot loans in India, guiding you through their features, benefits, eligibility criteria, and more.

What is a Plot Loan?

A plot loan, also known as a land loan, is specifically designed for the purchase of a plot of land. Unlike home loans, which are for buying constructed properties, plot loans cater to those who wish to purchase a vacant plot for construction purposes in the future. These loans are provided by banks and financial institutions and have different terms compared to other types of loans.

Features of Plot Loans

• Purpose: Exclusively for purchasing a residential plot where you can construct a house later.
• Loan Tenure: Typically, plot loans are offered for shorter tenures than home loans, usually up to 15 years.
• Interest Rates: The interest rates for plot loans are slightly higher compared to home loans due to the perceived higher risk by lenders. These rates currently range from 7% to 13.5%.
• Loan to Value Ratio (LTV): Banks usually finance up to 70% - 75% of the plot's cost, meaning the buyer needs to fund the remaining amount.

Eligibility Criteria

Eligibility for a plot loan varies from one lender to another but generally includes:

• Age: The applicant should be within a certain age range, usually between 18 to 70 years.
• Income: Steady income to ensure the repayment capacity of the loan.
• Cibil Score: A good Cibil score (usually 700 and above) is preferred as it indicates creditworthiness.
• Employment Status: Both salaried and self-employed individuals can apply for plot loans, but they must have a stable source of income.

Plot Loan Documents Required

The documentation process for a plot loan includes:

• Identity proof (Aadhaar, PAN card, etc.)
• Address proof
• Income proof (salary slips, bank statements, ITR filings)
• Property documents of the plot to be purchased

Tax Benefits

Unlike home loans, plot loans do not offer significant tax benefits. The tax deduction is available only when you start the construction on the purchased plot, and it falls under Section 24 and Section 80C of the Income Tax Act for the interest and principal repayment, respectively.

How to Apply for a Plot Loan?

The application process for a plot loan is similar to that of other loans:

• Research: Start by comparing different lenders, their interest rates, LTV ratio, and other charges.
• Eligibility Check: Ensure you meet the eligibility criteria set by the lender.
• Documentation: Gather all the necessary documents required for the loan application.
• Application: Apply online or visit the lender's office to submit your application along with the documents.
• Verification and Approval: The lender will verify your documents and the property details. Upon successful verification, the loan gets approved, and the funds are disbursed.

A plot loan is an excellent way to finance your land purchase in India. It provides the means to buy a piece of land where you can eventually build your home or use it as an investment. However, it's essential to understand the loan's terms, interest rates, and eligibility criteria before applying. By doing your due diligence and choosing the right lender, you can make your land-owning dreams a reality.

Remember, investing in land is a significant financial decision, and a plot loan can be a valuable tool to help you achieve your goals. With the right planning and financial strategy, you can navigate the process smoothly and make informed decisions about your investment.