A plot loan, also known as a land loan, is a type of loan offered by banks and housing financial companies (HFCs) to individuals who want to buy a plot of land. The purpose of this loan is to assist the borrower in acquiring land with the intention of constructing a residential unit on it.
When availing of a plot loan, the lender typically sets certain conditions to ensure that the borrower completes the construction of the property within a specific period of time from the loan sanction or disbursal. The loan often comes with competitive interest rates and allows the borrower to repay the loan through affordable Equated Monthly Installments (EMIs).
This makes it easier for borrowers to manage their finances while also fulfilling their dream of building a house on the purchased plot.
To know more about loans for buying land, read our webpage!
Plot Loan Interest Rates
Land loans typically carry higher interest rates than home loans. Loan interest for buying land provided by lenders might vary the actual rates offered to borrowers can go up to 13-16% based on applicant’s credit score, income stability, loan amount, and tenure. Land loan rates also depend on market conditions. and competitor benchmark rates. Opting for an average tenure of around 15 years can help reduce applicable interest rates.
| Interest Rate | Starting at 11.99% p.a. |
Plot Loan Fees & Charges
The table below displays the fees and charges associated with loans to buy commercial land, including processing fees, tenure, and loan amounts:
| Factors | Charges |
|---|---|
| Loan Amount | ₹10,000 – ₹15 Lakhs |
| Tenure | Starts from 6 months up to 5 years |
| Processing fees | 1% – 2%of the loan amount |
| Pre-closure Charges | 0% to 5% |
| Penalty Charges | 3% of the due loan amount |
Eligibility Criteria For Land Loan
Here is the listicle of eligibility criteria for land loans that you need to fulfill to avail a plot loan:
- Citizenship: Applicant must be a resident Indian.
- Employment Type: Both salaried and self-employed individuals are eligible.
- Age Range: Applicants should be in the age group of 18 to 65 years.
- Credit Score: 750 or above
Can you use land as collateral for a plot loan?
Yes, land can serve as collateral for a loan, providing security for lenders. This is common in land loans.
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Documents Required For Loans For Buying Land
This list below provides you with the general details as additional documents may be requested based on your profile and the lender’s criteria. Here are the key documents needed to apply for a plot loan:
- Completed application form
- Proof of age
- Income verification documents
- Evidence of employment or business
- Address Confirmation
- Documents pertaining to the plot/land
- Approved layouts or drawings of the plot by the relevant authority
Banks Offering Loans For Buying Land
The table below will help you have a comparative analysis of the banks providing loans for purchasing land, featuring their terms, interest rates, and eligibility criteria.
| Banks | Interest Rate (p.a.) |
|---|---|
| SBI Plot Loans | 9.20% – 9.80% |
| HDFC Plot Loans | 8.65% – 9.35% |
| Federal Bank Plot Loan | 12.35% onwards |
| Shriram Housing Finance | Starting from 9.5% |
| PNB Housing Plot Loan | 9.5% – 11.65% |
| Karnataka Bank Plot Loan | 12.26%-13.46% |
| Maharashtra Bank Plot Loan | 8.35%-10.55% |
| PNB Housing (Residential Plot Loan) | From 10.10% |
| Canara Bank (Canara Site Loan) | 9.65% |
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Plot Loan EMI Calculation
When planning to buy land and considering a loan, understanding your Equated Monthly Installment (EMI) is necessary. To simplify this process, you can use an online loan calculator for a quick estimate, providing you with an idea of your monthly financial commitment. However, you can manually calculate it by following the formula below.
Your Amortization Schedule (Yearly/Monthly)
The formula for calculating EMI is:
EMI = [P x R x (1+R)^N] / [((1+R)^N) – 1]
Where:
- EMI = Equated Monthly Installment
- P = Principal Loan Amount
- R = Monthly Interest Rate
- N = Loan Tenure in Months
For example:Let’s consider a loan of ₹50,000 at an annual interest rate of 11.99% for a 5-year tenure (60 months):
Loan amount (P) = 1,00,000
Interest rate (R) per annum = 11.99% = 0.1199
Tenure (n) of loan = 5 years = 60 months
P = Rs. 50,000
R = 11.99/12 = 0.00999
n = 60 months
Now, Using the formula for EMI:
EMI = P x R x (1 + R)^n/((1+R)^n – 1)
EMI = 1,00,000 x 0.999% x (1+0.999%)^60/[(1+0.999%)^60-1]
EMI = 1,00,000 x 0.999% x 1.7713/0.7713 = Rs. 2.331
So, the EMI for a Rs. 1,00,000 loan at 11.99% annual interest for a 5-year tenure is Rs. 2,331
Therefore, the EMI is ₹2,331 (Approx)
Plot Loans Features
Here are the features and benefits you can experience by taking land loans:
- Land Purchase and Construction: Land loans are tailored for purchasing plots and financing the construction of residential units.
- Attractive Interest Rates: Land loans come with competitive interest rates, enhancing affordability for borrowers.
- Flexible Repayment Options: Borrowers benefit from flexible repayment options, including affordable EMIs and extended tenures.
- Maximum Loan Amount: The loan amount is determined based on factors such as land value, borrower eligibility, and lender policies.
- Legal Verification: Thorough legal verification of land titles and ownership is conducted by lenders to ensure compliance.
- Regulatory Adherence: Land loans adhere to regulatory guidelines, providing transparency and legal compliance in the lending process.
Balance Transfer Facility
Before proceeding with a balance transfer on your plot loan, carefully compare the terms, conditions, and benefits offered by different lenders to ensure it align with your financial goals.
If you’re considering transferring your existing plot loan to another lender, here’s what you need to know about the balance transfer facility:
- Lower Interest Rates: Explore the option of a balance transfer to benefit from lower interest rates offered by other lenders in the market.
- Cost Savings: A balance transfer can result in cost savings over the loan tenure, as reduced interest rates translate to lower overall repayment.
- Flexible Repayment Terms: Opt for a lender that provides more flexible repayment terms, ensuring that the loan suits your financial needs and capabilities.
- Enhanced Features: Evaluate lenders offering additional features such as top-up loans, extended repayment periods, or improved customer service.
- Improved Loan Management: Transferring your plot loan may provide better loan management options and digital interfaces, enhancing your overall borrowing experience.
- Consideration of charges: Assess any processing fees, prepayment penalties, or associated charges with the balance transfer to make an informed decision.
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Tax Benefits on Loans For Buying Land
Tax benefits on loans for buying land may vary depending on the purpose of the land acquisition and its subsequent use. Here are some general points to consider:
- Agricultural Land Purchase: If the land is intended for agricultural purposes, there may not be specific tax benefits available. Agricultural income, however, is generally exempt from income tax.
- Construction of Residential Property: If the land loan is utilized for constructing a residential property, tax benefits on the interest paid may be available under Section 24(b) of the Income Tax Act.
- Joint Ownership: In case of joint ownership, each co-owner may be eligible for individual tax benefits on the interest paid on the loan.
- Tax Deduction on Principal Repayment: Tax benefits on the principal repayment of the land loan may be claimed under Section 80C, subject to specified conditions.
- Completion of Construction: To claim tax benefits, it is crucial to complete the construction within the specified time frame from the loan sanction.
- Consultation with Tax Advisor: Tax laws are subject to change, and individual circumstances may vary. Consulting with a tax advisor is recommended for accurate and updated information on tax benefits related to land loans.
Difference Between Plot Loan & Home Loan
Land loans are specifically designed to finance the purchase of vacant land. These loans typically have higher interest rates compared to home loans because vacant land is considered a riskier investment. The eligibility criteria for land loans may also be stricter as lenders want to ensure that the borrower has a clear plan for utilizing the land.
On the other hand, home loans are intended for the purchase of ready properties or for financing construction.
| Factors | Land Loan | Home Loan |
|---|---|---|
| Purpose | Purchase of land | Purchase of a residential property |
| Collateral | Land being purchased | The residential property being financed |
| Interest Rates | May be slightly higher compared to home loans | Competitive rates |
| Tenure | Upto 13 years | Upto 15 years |
| Tax Benefits | Tax benefits are applicable only to cover construction cost. | Tax benefits on both principal and interest repayments |
| Loan To Value | Varies between 75 to 90% | Varies between 75 to 80% |
| Usage Restrictions | Primarily for the purchase of land | For construction, purchase, repairs, or renovation of a house |
Steps to Apply For Business Loan
Buddy Loan facilitates quick access to financing from ideal lenders to cover land purchase costs. Along with land loans, personal loans or business loans can also fund such property investments or expenses.
- Step 1: Visit buddyloan.com or Download & install the Buddy Loan app (Android or iOS).
- Step 2: Open the business loan application page. Provide the mobile number and enter the received OTP.
- Step 3: Specify the desired loan amount and email. Next, choose the Business Loan option.
- Step 4: Choose if you have a Business Proof (Yes/ No)
- If ‘Yes’ (If you have a business proof), enter your business and personal details.
Or - If ‘No’ (If you do not have a business proof), choose the profession type and enter your personal details.
- If ‘Yes’ (If you have a business proof), enter your business and personal details.
- Step 5: Provide income details and Click the ‘Submit’ button.
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