What is a Plot Loan?
If a person is salaried or self-employed and meets specific criteria, a bank may authorize them for a plot loan or land loan. With the use of direct allotments in housing societies or various real estate and developer initiatives, this grant may be used to purchase a variety of plots. They can also be bought by repurchasing projects that are run by housing organizations or development authorities.
Despite the fact that the plot may be located inside or outside of the municipal borders, applicants must abide by a number of additional requirements. The purchased plots, for instance, are only permitted for residential use. It is not permitted to cultivate the plots. Additionally, the purchase of the land must have approval from a competent body.
Eligibility for Plot Loans
Some of the typical qualifying requirements for the majority of financial institutions include the following:
- Age range: 18 to 70 years
- Nationality: resident of India
- Employment: Salary or independent contractor applicant
- Income: Must come from a consistent source.
- CIBIL rating: 750 or higher
Documents Needed for Plot Loans
- Voter ID cards, PAN cards, passports, licenses, Aadhaar cards, and other forms of identification are examples of proof of identity.
- Utility bills (electricity, phone, water bills, etc.), a lease agreement, an Aadhaar card, a ration card, a voter ID card, and other documents are acceptable forms of address evidence.
- Payroll tax returns for salaried individuals: Paystubs from the previous two months, bank statements from the previous three months, an employee ID card, and two years’ worth of Form 16s
- Self-employed income documents: ITRs (income tax returns) from the previous two years, financial statements from the last two years, a six-month bank account statement, and so on.
Benefits of Plot Loans
Banks that offer land loans usually employ strategies that are frequently advantageous to prospective clients. Here are some of the advantages of asking for a plot loan that are most widely acknowledged.
- No matter how much money they make or how much they may earn, many banks will grant applicants a reduced interest rate if they can add a co-owner or co-applicant, preferably a woman. A co-applicant frequently elevates your standing and qualifies you for loans with very high borrowing limits.
- Plot loans have reasonable interest rates, and their payback terms are doable.
- The cost of processing an application is not something that applicants are compelled to pay much of.
- With some restrictions, these donations also give recipients tax advantages.
Features of Plot Loans
- Loans for land acquisitions are only available for a select few types of properties. Obtaining these loans for industrial or agricultural land is extremely challenging. Additionally, the land should be clearly defined and located inside city boundaries. Interest rates are generally somewhat higher for land purchase loans than for residential loans at most banking institutions.
- In the case of secured loans, the loan-to-value (LTV) ratio refers to the portion of the property’s worth that a financial institution may provide as financial aid to the property buyer. Typically, financial institutions provide these loans for 70–75 percent of the cost of the property.
- Land loans typically have a 15-year term.In contrast to residential loans, loans for the acquisition of land have considerably higher EMI amounts as a result of this.
- Prepayment penalties are not required for borrowers of plot loans with adjustable interest rates. For non-person borrowers, financial institutions may impose prepayment penalties ranging from 2 to 4 percent. This is applicable to individual borrowers.
Who Is Eligible to Apply for a Land Purchase Loan?
Many candidates are given access to plot loans. Loan proceeds can then be used by qualified borrowers to buy a residential lot on which to construct the home of their choosing, based on their own preferences. Two categories of loan applicants are listed below:
- Salaried People
Depending on their level of income and occupation, banks provide several forms of financial assistance to people. Those who work for businesses or the government can get loans for salaried people.
- Self-Employed Employees
Banks freely offer financial support to independent contractors who are not affiliated with larger corporations or institutions.
Things to Think About Before Getting a Loan for a Plot Purchase
- Make sure the plot you’re buying isn’t used for industrial or agricultural reasons, as most lending institutions only give loans for residential plots.
- To locate the most cheap plot loan, compare interest rates offered by several lenders.
- Verify the loan amount being provided against a specific piece of land.
- Check the terms and conditions to discover whether there is a penalty for postponing building.
- Check the loan’s extra costs, such as processing fees and prepayment penalties.
Personal Loans Vs. Land Loans
|Personal loan||Land loan|
|Definition||A loan that does not require collateral and can be used to finance almost anything.||A loan from a bank, lender, or other financial organization was used to fund a plot of land.|
|Estimated APRs||APR ranges from 10% to 25%, depending on the borrower’s creditworthiness; APR might be as low as 5.99% or as high as 30% or more*.||Expect interest rates to range between 4% and 5.25% depending on the sort of land loan you seek.|
|Loan length||1 to 5 years, though sometimes longer||10-30 years|
|Loan amount||$1,000 to $50,000, but occasionally more||The loan amount may be adjustable, however some lenders give loans of up to $200,000 or more.|
Expenses incurred When Obtaining Plot Loans
Unlike home loans, applicants seeking land loans do not have to pay any prepayment penalties. However, there are a few more expenses associated with obtaining a loan, which may vary from bank to bank. Before the loan is approved, several fees are payable. These fees may include, but are not limited to, application fees, which typically range between 0.5% and 3%.
In addition to these expenses, applicants must pay legal fees to lawyers who conduct the property search and provide the title investigation report. Applicants must additionally pay a fee to the specialists who deliver the value report.
What criteria must be met in order to qualify for a loan to buy land?
You’re required to buy the piece of land of your choice that will be used solely for purposes other than agriculture.
Before you apply for a loan to buy real estate, the land should have received local authority approval, and you must have the necessary legal documentation.
Even while the rates and credit terms for land are comparable to those for a home, there are still some fundamental distinctions between the two.