India is an agrarian economy where a large section of the population earns their livelihood through agricultural activities. Farmers need to incur huge expenses to cultivate their produce, set up irrigation facilities, and maintain land fertility. To carry out these, they often need financial assistance. A Loan against Agricultural Land (LAMF) is a type of loan where landowners use their farmland as collateral to secure financial assistance.
Taking a loan against agricultural land allows landowners to utilize the economic value of their agricultural assets while still using and cultivating the pledged land. With the help of a loan taken against their farmland, they can cover expenses like purchasing new equipment, investing in irrigation systems, or expanding their farm operations.
The interest rates for a Loan Against Agricultural Land may fluctuate based on various factors, such as the lender, current market conditions, the creditworthiness of the borrower, and the specific terms of the loan.
Let’s go through the interest rates offered by top lenders for loan against agricultural land:
|Interest Rate (p.a.)
|State Bank of India
|Kotak Mahindra Bank
|11.25 % to 14.00%
|Punjab National Bank
Land Ownership: The applicant must be the legal owner of the agricultural land.
Profession: Eligible applicants include farmers, dairy owners, horticulturists, etc.
Age: The applicant must be between the age of 21 - 60 years.
Land type: The land must be irrigated or have the potential for irrigation.
Size of the landholding: The size of the landholding must be sufficient to meet the requirements of the loan.
Income proof: The borrower must have a steady source of income.
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Keep the following documents ready to get quick approval on your loan against agricultural land:
Identity Proof: Provide PAN card, Aadhar Card, or any other valid identification.
Address Proof: Provide Aadhar Card, Passport, or any other valid address proof.
Land Documents: Include essential papers like the land sale agreement and proof of land taxes paid.
Income Proof: Submit a 6-month bank statement.
Additional Documents: Complete the application form and attach a passport-size photograph for a seamless application process.
Loan against farmland has several features and benefits that make the entire loan journey safe and easy for borrowers. Here are the common features to be noted:
Collateral Advantage: Agricultural land serves as collateral, lowering the lender's risk and potentially leading to lower interest rates.
Minimal Documentation: The application process requires minimal documentation compared to other loan types.
Flexible Repayment: Lenders often provide flexible repayment plans, considering the farmer's seasonal income cycle and harvest seasons.
Extended Tenure: Loan tenures are usually long allowing borrowers to manage repayments and cash flow effectively.
Transparent Process: Reputable lenders disclose all charges and fees upfront, ensuring transparency.
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The loan amount for a Loan Against Agricultural Land is determined by the land's value used as collateral. Lenders assess the market value and provide a loan based on a percentage of that value.
The loan-to-value (LTV) ratio is commonly used in this context, representing the ratio of the loan amount to the appraised value of the agricultural land. For example, if the LTV ratio is 70%, and the appraised value of your land is ₹1,00,000, the potential loan amount could be ₹70,000.
Borrowers should work with the lender to understand the valuation process and the maximum loan amount they qualify for.
Now, let’s understand the total cost of the loan with an example,
If you secure a loan amount of ₹1,00,000 for a duration of 12 months with an annual interest rate of 10%, the monthly interest is around ₹833.33. The total repayment, including interest, over the tenure amounts to ₹1,09,999.96. Adding the processing fee of ₹999 and a stamp duty of ₹500 results in a final total payment of ₹1,11,498.96. In that case, the monthly EMI will be around ₹1011/-. You cna also use an EMI Calculator to calculate you loan EMI
There are several types of loans available against agricultural land, each with its own terms and conditions. The most common types of loans include:
Crop Loans: These loans are usually short-term loans used for financing the cultivation of crops. They are often repaid within a year.
Term Loans: These loans are typically used to finance the purchase of agricultural equipment or machinery, or to make improvements to agricultural land.
Kisan Credit Cards (KCCs): These are revolving credit facilities that can be used to finance a variety of agricultural expenses, such as the purchase of seeds, fertilizers, and pesticides. They have a fixed repayment period, typically 12 months.
Specialized Loans: These loans are available for specific purposes, such as livestock rearing, fisheries, horticulture, and land purchase. They have varying terms and conditions, depending on the purpose of the loan.
You can get a personal loan against agricultural land from various lenders and use it for agricultural activities. Check these steps to apply for a loan against your agricultural land.
Step 1: Check your eligibility and choose a lender. Visit the bank website or visit the bank in person.
Step 2: Carry the essential documents, work with the lender to understand the valuation process and the maximum loan amount.
Step 3: Check and negotiate on the interest rates.
Step 4: Go through the terms & conditions and apply for the loan.
Step 5: Get your loan sanctioned from the bank or the respective lender.
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Loan Against Agricultural Land is a loan using agricultural land as collateral; it works by allowing landowners to borrow funds based on the value of their land, providing financial flexibility.
Yes, agricultural land can be used as collateral to secure a loan.
The loan amount is determined by factors such as the land's market value, location, and size, assessed by the lender's policies.
Yes, the loan can be used for agricultural purposes, land improvement, or other financial needs.
Many governments offer loan programs for farmers and landowners, supporting agricultural development and related activities.
Essential documents include identity and address proofs, a land sale agreement, proof of land taxes paid, income proof, and a completed application form with a passport-size photograph.
The condition and value of the agricultural land significantly influence loan approval, with well-maintained and higher-value lands often leading to more favorable terms.
Generally loans are not taxable, however there could be several conditions wherein it could be taxed, so, consult a financial advisor or the bank for an detailed understanding of it.
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