Everything You Need to Know About Plot Loans
In the realm of real estate finance, home loans often dominate the conversation. However, an often-overlooked option exists for those looking to purchase land for future construction: the plot loan.
Plot Loan is designed to cater specifically to individuals who aspire to buy a plot of land, either as an investment or to build their dream home in the future.
What is a Plot Loan?
A plot loan, also known as a land loan, is a type of loan specifically intended for the purchase of a plot of land. Unlike home loans, which are used to buy constructed properties, plot loans provide the flexibility to buy land and construct a building on it at a later date.
Key Features of Plot Loans
- Purpose: The primary purpose of a plot loan is to purchase a residential plot. Some lenders may also offer plot loans for commercial purposes.
- Eligibility: Similar to home loans, plot loans are available to salaried individuals, self-employed professionals, and business owners. Plot Loan eligibility criteria typically include age, income, employment stability, and credit score.
- Loan Amount: The amount sanctioned under a plot loan usually depends on the borrower's repayment capacity, creditworthiness, and the value of the land. Generally, lenders finance up to 70-80% of the land's value, as referred to as Loan-to-Value or LTV.
- Interest Rates: Plot loan Interest rates can be slightly higher than home loan interest rates due to the perceived higher risk associated with land purchase. These rates can be fixed or floating, depending on the lender's terms.
- Tenure: The repayment tenure for plot loans is typically shorter than that of home loans, usually ranging between 5 to 15 years. This shorter tenure results in higher monthly instalments compared to home loans. You can check your EMI using an EMI calculator before you apply for a plot loan.
- Tax Benefits: Unlike home loans, plot loans do not offer tax benefits on the principal repayment, or the interest paid under Section 80C and Section 24(b) of the Income Tax Act, unless construction is completed on the plot within a stipulated period.
- Processing and Documentation: The documentation process for plot loans is similar to that of home loans. It includes identity proof, address proof, income proof, property documents, and bank statements.
Also Read: How Loan-to-Value Shapes Your Home Buying Experience?
Advantages of Plot Loans
- Investment Potential: Buying a plot can be a great investment, as the value of land tends to appreciate over time. It provides the flexibility to build a customized property in the future.
- Lower Costs: Purchasing a plot is usually less expensive than buying a ready-to-move-in property. This makes it a viable option for individuals with budget constraints.
- Customization: Owning a plot allows you to construct a home that suits your personal preferences and requirements, rather than adjusting to a pre-constructed house.
- Future Planning: A plot loan enables future planning for individuals who wish to build a home at a later stage, perhaps post-retirement or when finances allow.
How to Apply for a Plot Loan?
- Research and Compare: Begin by researching various lenders and comparing plot loan interest rates, loan tenures, processing fees, and other charges.
- Check Eligibility: Ensure that you meet the eligibility criteria set by the lender, which usually includes age, income, employment stability, and credit score. You can also check your eligibility using an eligibility calculator.
- Prepare Documentation: Gather all necessary documents such as identity proof, address proof, income proof, bank statements, and property documents.
- Submit Application: Fill out the loan application form and submit it along with the required documents to the lender.
- Loan Approval and Disbursement: Upon successful verification of your documents and creditworthiness, on loan approval, the lender will disburse the amount.
Also Read: Why is Credit Score Important for Loans?
Considerations Before Taking a Plot Loan
- Purpose and Future Plans: Clearly define your purpose for buying the plot and your future construction plans. Ensure that the plot is in a location that suits your long-term goals.
- Budget and Financial Planning: Evaluate your budget and ensure that you can comfortably manage the EMIs along with other financial commitments.
- Legal Verification: Conduct thorough legal verification of the plot to ensure a clear title and the absence of any encumbrances. This step is crucial to avoid future disputes.
- Lender Terms: Understand the terms and conditions of the plot loan, including interest rates, prepayment charges, and penalties for default.
Also Read: How EMI Calculators Simplify Loan Evaluation and Budget Planning?
Plot loans open up a world of possibilities for those looking to invest in land or build a customized home in the future. While they come with their own set of considerations, the potential benefits can be significant. By carefully evaluating your financial situation and plans, a plot loan can be a valuable tool in achieving your real estate aspirations.
For those looking to apply for a plot loan; Godrej Capital offers Home Loans and Plot Loan at competitive interest rates. With innovative offerings such as Design your EMI and Parallel Funding, customers can get hassle-free loans on easy terms and conditions. Click here to learn more about the offerings.
Also Read: Design your EMI: The Flexibility You Need for Loan Repayments
Disclaimer: The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com
