What is a Plot Loan and Which Banks Provide it in India?

For anyone looking forward to purchasing a piece of land, but doesn’t have sufficient funds to do so, leading banks in India offer a special credit known as Plot Loan or in some cases Land Loan. More often than not, Land Loans are procured by individuals in order to purchase a plot from a housing society, a real estate development organisation or through an agent. This loan can also be taken to buy a piece of land through the means of resale from a lender.

As is the case with most other loans such as Home Loans, auto loans and educational loans, Land Loans are also subject to specific prerequisites. For instance, these loans are offered only when the plot is purchased for non-agricultural purposes. Then again, the plot needs to have approval from the local authorities. Moreover, it is essential that all the relevant documents of the plot are made available at the time of purchase, lest the loan application may not get through.

Important Features of Land Loan

Here are some of the features that have significantly contributed to increasing the popularity and demand for Land Loans in the recent past:

Low Interest Rates

Most leading banks of the nation, offer land loans at exceptionally low-interest rates, ranging anywhere from 8.70% to 12%. This makes it exceedingly cost-effective for borrowers to acquire and repay this loan.

Low Processing Fee

Unlike the case with many other credits, land loans usually attract a minimal processing fee, ranging anywhere between 0.35 to 0.5% of the loan amount or a flat rate of up to Rs. 10,000.

No Pre-Payment Penalty

This is yet another imperative benefit of Plot Loans. A vast majority of banks do not levy any pre-payment charges on this loan. This feature makes it incredibly convenient for the borrower to prepay this loan as and when possible, and thus save on the interest outgo.

Daily Reducing Balance

This is one of the unique features of Land Loans. As and when a part of the principal amount is paid off, the interest charges are reduced, thus ensuring a decreased burden on the borrower’s shoulder.

Short Repayment Tenure

As against regular Home Loans, Plot Loans enjoy shorter repayment tenure often ranging from 10 to 15 years. This ensures quick repayment of the loan amount and comparatively lower interest outgo.

Concession for Female Borrowers

In case of the applicant for the loan being a woman, most banks willingly offer a concession on the rate of interest ranging from 10 to 50 basis points, and in some cases up to 75 basis points.

Reasonable Loan to Value (LTV)

One can expect to get a Loan to Value ratio of about 50% to 70% when applying for a Home Loan to buy land, implying that for land worth market value of Rs. 10 Lakhs, the approved loan amount can be as high as Rs. 50 Lakhs to Rs. 70 Lakhs. As is the case with all other loans, the remainder amount needs to be paid by the borrower.

High Loan Amount

An applicant can expect to get a loan of up to a whopping Rs. 15 Crores.

Factors Determining the Approval of Plot Loan Application

As mentioned earlier, Plot Loans are only approved in case the borrower is buying the land for non-agricultural purposes, and the seller has all the relevant documents in place. In addition, some more factors play a vital role in the approval of a Plot Loan application:

1. Credit Score

For a borrower to expect a swift approval of the loan application, it is crucial that they enjoy an excellent credit history, preferably with a score of 650 or above. Considering a Plot Loan is a long-term credit, the bank needs to be sure of the borrower’s ability as well as willingness to repay the loan promptly. In most cases, a poor score can lead to the rejection of the application. Even if the lender chooses to approve the same, a less than the reasonable score may lead to unfavourable terms or even a higher than the average interest rate.

2. Age

The age of the borrower should be 21 years and above (in most cases). Another age-related prerequisite for the approval of the loan application is that the applicant should be less than 70 years in age, at the time of completion of the loan tenure.

3. Loan Tenure

The borrower can expect loan tenure of 10 to 15 years. In order for the loan application to get approved, it is crucial for the bank to rely on the applicants’ ability to repay the loan within the stipulated period of time, based on their income, growth prospect and repayment history.

4. Nationality

Any applicant applying for a Land Loan in India should necessarily be an Indian and must be able to furnish the proof of their nationality if required.

Important Point to Remember

More often than not, a Land Loan will attract some additional charges such as the Advocate’s fee and the Valuer’s Fee, which are essentially pre-sanction charges. The post-sanction charges for this credit include stamp duty and property insurance premium.

The borrower is also expected to pay a CERSAI registration fee of Rs. 50 in addition to the GST (capped at Rs. 5 Lakhs). For GST above Rs. 5 Lakhs, the CERSAI registration fee of Rs. 100 needs to be paid.

Banks Offering Land Loans in India

Borrowers willing to take a Land Loan can approach any of the following leading banks for competitive rates and great offers:

• SBI
• ICICI
• HDFC
• DHFL
• LIC Housing Finance Ltd.

A Plot Loan is one of the best alternatives, which lets you enjoy the much-desired freedom of giving shape to the house of your dreams. Owing to the fact that land is a limited resource, and makes for a significant investment with a promising rate of return, opting for a Plot Loan might prove to be an excellent financial decision. However, if you are simply taking the credit for investment purposes, you must note that this loan is NOT entitled to any tax benefits, unlike Housing Loan. In such a situation, it may be better if you apply for Home Loan, or simply take any other loan that may bring in such benefits.

We hope that you now know everything that there is to about Plot Loans. So, what are you waiting for? If you think this may just be the ideal choice for you, go ahead and get in touch with an online loan aggregator and file your application at the earliest!