Plot Loans for Land Purchase

August 10, 2022

Plot Loan Interest Rate 2022

Plot loans are a lucrative financial assistance tool when considering buying a piece of land. Once deciding on which plot loan to avail of, it is essential to be aware of the fact that you are required to pay a certain amount of interest on the same. The table below pertains to the various interest rates offered by banks in India for 2022.

Banks that provide Plot Loan Interest Rate (p.a.)
SBI 7.85% – 8.45%
HDFC 7.55% – 8.05%
Federal Bank 8.55% – 8.70%
Shriram Housing Finance 8.90%
PNB Housing 8.50% -11.70%
Karnataka Bank 11.28%-12.48%
Maharashtra Bank 7.30%-9.20%

What is a Plot Loan?

Plot Loans or Land Loans are bank-sanctioned financial grants provided to salaried and self-employed individuals as long as they meet certain requirements. This grant can acquire various plots via direct allotments in housing societies or different kinds of real estate and developer projects. They can also be purchased through resale purchases of projects conducted by development authorities and/or housing societies.

While the plot could be within or outside the city limits, there are specific other rules and regulations that applicants need to adhere to. For instance, the acquired plots can only be used for residential purposes. Using the plots for agricultural purposes is prohibited. A competent authority must also sanction the acquisition of the plot.

Who Can Apply for a Loan for Land Purchase?

Plot loans are offered to a number of applicants. The eligible applicants granted the loan can subsequently use the money to purchase a residential plot of land where they can build the home of their choice, according to their personal preferences. Listed below are two kinds of applicants that are offered loans:

1.  Salaried Individuals

There are different kinds of financial aid that banks offer individuals based on their employment status and income. Loans for salaried individuals are provided to those who function in the capacity of corporate or government employees.

2.  Self-Employed Individuals

Banks freely provide financial assistance to self-employed individuals who are not part of a bigger conglomerate or an institution. These include professionals like doctors, traders, CAs, small business owners, lawyers and more.

EMI Calculator

Plot Loan aspirants often rely on EMI Calculators that are mushrooming across the internet to gain insight into how their finances and repayments will be divided throughout the tenure of their loan. Digital calculators allow users to calculate their monthly loan installments with relative ease. The user must enter details like the loan amount, the required tenure in months, the loan interest rate, and the processing fee to get an accurate analysis of their loan.

Key Features and Benefits

Banks offering land loans frequently rely on tactics that are often beneficial to prospective applicants. Here are some of the most popularly recognised benefits of applying for plot loans.

  • Several banks offer applicants a lower rate of interest if they can bring forth a co-owner or a co-applicant, especially a female, regardless of their income and earning capacity. The presence of a co-applicant often boosts your status, making you eligible for loans worth an enormous amount.
  • Plot loans offer desirable interest rates, and the repayment tenures are quite manageable.
  • Applicants are not forced to shell out a significant amount of money to process their applications.
  • These grants also offer applicants tax benefits under certain conditions.

Eligibility Criteria to Apply and Get Approved

Much like any other financial grant, land loans require applicants to meet certain conditions before the bank can deem them eligible for the endowment. While different institutions have different requirements, the following are some of the most common conditions that applicants must fulfill:

  • Applicants must prove their nationality as Indians residing in India for the foreseeable future.
  • Applicants must adhere to a particular age limit, which bars prospective Indian applicants younger than 23 and over 60 from applying for financial assistance. On the other hand, NRIs can only apply for a loan between the age bracket of 25 to 60 years.

Owing to the relatively unstable nature of the income of self-employed individuals, they are often subjected to a different, and in some cases more stringent, set of rules and regulations.

  • Banks exclusively offer loans to self-employed Indian nationals residing in the country.
  • While the lower end of the age bracket for aspiring applicants is increased to 28, it is essential to note that the higher end of the bracket is also placed considerably higher because self-employed individuals are more likely to continue working long past the age of retirement when compared to salaried applicants.
  • Applicants must also have a good credit score and a clear repayment history.
  • Applicants hailing from agricultural backgrounds, whether large or small, are characterized under loan schemes based on their ownership of irrigated and unirrigated land.

‎Any Applicant can Check Loan Eligibility before applying

Required Documents to Process the Application

Much like any other process involving exorbitant amounts of money, there are certain documents that applicants need to submit to offer banks the clarity and assurance they require to approve them for the allowance.

  • Application form
  • A photograph of the applicant
  • Documents verifying the applicant’s identity [Driver’s License, PAN Card etc.]
  • Proof of residence of the applicant
  • Pay slips
  • Bank statements going back six months
  • Form 16
  • A cheque to cover the loan processing fee

While these are the most commonly required documents, there are some additional documents that the financial institution may demand. For instance, documents confirming details regarding the original owner of the plot, a ‘No Encumbrance’ certificate, Town Planning Authority approved layouts and plans for the particular plot of land, tax receipts, and land records.

Costs Incurred While Availing Plot Loans

Unlike a home loan, applicants applying for land loans are not required to pay any prepayment charges. However, a few other costs are involved in acquiring a loan, which may vary from bank to bank. Some charges are incurred before the loan is sanctioned. These charges include, and may not be limited to, application fees, which usually fall between 0.5% and 3%.

In addition to these charges, applicants must pay the legal fees to lawyers who provide them with the property search and title investigation report. Furthermore, applicants also owe a fee to the professionals who present the valuation report. After the loan is sanctioned, applicants are expected to be charged specific amounts for the stamp duty for the loan agreement and mortgage, property insurance premium and CERSAI registration fee, which comes up to Rs. 50 excluding GST for amounts up to Rs. 5L and Rs. 100 excluding GST for amounts above Rs. 5 lakhs.

How to Enjoy Tax Exemption on Plot Loans

Individuals investing in property often carry an idea that suggests that investing money in a plot does not offer the same amount of tax exemptions compared to home loans. However, it has been a common misconception plaguing the property investment industry for quite some time.

  1. Deduction of Interest

    The national taxation code offers a reduction in the loan interest rate to home or plot owners(who bought the land to construct a residential building on it) from their tax bonuses. This makes a great deal of difference considering how interest disbursements are often the most significant part of their loan settlements in the initial years of their tenure.

  2. Pre-construction reduction of interest

    Discounts on land loan interest rates can be claimed at the beginning of the year construction takes place over the plot. The option to claim pre-construction interest in the same year is also offered to plot owners. However, the deductions are capped at a maximum amount of Rs. 2 lakhs, that is, if the plot owner and the family occupy the plot themselves.

  3. Deduction mandated by Section 80C

    The part of the EMI pays towards the principal sum, which plot owners can claim under the Indian Income Tax Act’s Section-80C. Plot owners can claim a total of Rs. 1.5 lakhs if they recapitulate the outgo for the previous year towards principal and file a claim for the same.

Differences Between Plot and Home Loans

Plot and Home Loans are often considered mutually exclusive, as they seemingly serve the same purpose. However, specific differences set them apart.

  • The most significant difference between the two, as the name suggests, is that home loans are primarily granted for properties undergoing construction, restoration, or completely built. On the other hand, plot loans are granted to acquire pieces of land.
  • The Loan to Value ratio for a loan for land purchase is 50-70%, whereas that for a home loan is 80%, and the LTC for loans crossing the threshold of Rs. 3 lakhs is 90%.
  • Tax benefits afforded to those taking home loans cannot be availed by those taking land loans.
  • The tenure for home loans tends to run higher than that of plot loans.

What’s the Maximum Funding and the Loan Payment Term?

The maximum amount of loan a bank offers may vary from bank to bank. However, it is common for banks to offer up to 75% of the property’s value. Some banks also provide up to 90% of the property’s value if the total sum is less than Rs. 75 lakhs. The maximum repayment term for plot loans is up to 30 years.

FAQs

Which bank is best for Plot Loans?

While many banks offer great plot loans to borrowers, one needs to find the perfect fit as banks differ in terms of their loans. Before picking a bank, there are land loan interest rates and the tenure of the loan.

Can a plot loan be converted to a Home Loan?

Yes. A Plot Loan can be converted into a regular Home Loan after submitting the completion or occupancy certificate to the bank. This allows the borrower to enjoy the tax benefits of home loans.

What are my plot loan tenure options?

Plot Loan tenure options are subject to a particular bank’s policies. However, they can generally go up to a maximum tenure of 25 years.

Are NRIs eligible for plot loans?

Yes. NRIs are eligible to apply for Plot Loans.

Can I get a 90% plot loan?

Yes. If the total amount to be borrowed is under Rs. 75 lakhs, then banks can offer up to 90% of the value of the plot.

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