How Plot Loan is Different from Home Loan

If you are looking to finance a property purchase, it is important to know the difference between Plot Loan and Home Loan. Although they are both used in providing financial assistance, their purposes, terms, and conditions differ greatly from each other.

This article, therefore, explores these differences to help you decide on how a Home Loan is different from a Plot Loan and make an informed decision as a buyer in the market.

What is a Plot Loan?

A Plot Loan is a kind of loan that is meant to help individuals or persons buy land to build on in the future. However, there are strict conditions pertaining to the type of land and its locality.

Some points that need to be kept in mind are:

• The land must not be agricultural.
• It should be within municipal or corporation limits.
• Usually, the borrower has to commit himself to start construction in a specified time, usually 2-3 years.

Also Read: Everything You Need to Know About Plot Loan

What is A Home Loan?

A Home Loan, on the other hand, involves the acquisition of either a ready-made house, under-construction property, or the construction of it on a plot. This type of loan will cover the entire structure’s cost as well as related property expenses.

Plot Loan vs Home Loan Differences

Understanding the differences when it comes to Plot Loan vs Home Loan can help you make a better choice.

The differences between Plot Loan and Home Loan are as follows —

• Plot Loan is only for land acquisition.
• Home Loan is meant to purchase an existing house, an under-construction property, or for constructing a house on a plot.

Loan-to-Value (LTV) Ratio:

A loan-to-value (LTV) ratio is a financial term that compares the amount of a loan to the value of the asset that secures it. Any lender in India can offer as high as 70% of the plot value as a loan for purchasing such a piece of land. However, the borrower can secure as much as 90% of the total property value through Home Loan.

Tenure:

• The period for Plot Loan is relatively shorter, ranging from 10 to 15 years.
• On the other hand, Home Loan can run up to 30 years based on the eligibility of the borrower.

Tax Benefits:

• By the time the construction starts, you can be eligible for tax benefits related to Plot Loan.
• On the other hand, under Section 24(b) of the Income Tax Act 1961, there is an option for interest payment deductions only if your house has been constructed.
• Home Loan offer broader tax benefits on both the principal amount (under Section 80C) and interest paid (under Section 24).

Interest Rates:

• As compared to a Home Loan, the interest rates for acquiring plots are considerably higher.
• Plot Loan are deemed more risky by the lender due to the fact that land does not yield any rent immediately like houses do.

Can We Take Home Loans to Buy Land?

Most people often have this query ringing in their mind — “Can we take a Home Loan to buy land?” The quick answer is no. Home Loan is only designed for homes under construction or whose construction works are already completed.

Plot Loan is what you should go for when acquiring land where you can build your own home later if necessary. Some banks might give out composite loans which include money for acquiring a plot as well as constructing a residential house.

Eligibility Criteria for the Loan

The qualifications for either a plot or the residence vary slightly:

Plot Loans:

• A person getting this type of loan must be sure that his land fits the creditor’s conditions.
• It is often a requirement to have a well-established construction plan.

Home Loans:

• Those who wish to go for a Plot Loan will need to show evidence of regular income as well as stable employment.
• Those interested in under-construction projects must ensure the builder has been approved by a bank.

Can We Get a Loan on Plot?

One of the most frequently asked questions is, “Can we get a loan on plot?” Yes, you can obtain funding for this purpose. However, there are some specific conditions attached to Plot Loan, such as buying non-agricultural land and adhering to the timeline of construction activities, among other things, to ensure you meet these requirements before applying for one.

The Bottom Line

One must be able to differentiate between Plot Loan and Home Loan to come up with veritable decisions regarding the factors on which they should base their financial plans while purchasing real estate – either now or later in life. Therefore, you should always evaluate how sustainable the plan is when buying a plot or a house in the future. This way, one can choose a credit facility that suits their goals best.

When it comes to choosing between Plot Loan and Home Loan, you must consider your purpose as well as your financial goals. If you need land first before building your dream house, then consider opting for a Plot Loan. If you want to buy or construct a house now, apply for a home loan now to secure your dream property.

Moreover, if you want to calculate your EMIs per month when you apply for a Home Loan, you can just use an online EMI calculator. This way, you can save yourself the time and effort it takes to figure out monthly instalments.

Also Read: Home Loan: All You Need to Know

FAQs

Q.1. Is a Plot Loan the same as a Home Loan?

A. Plot Loan and Home Loan are often used interchangeably but differ. A Home Loan is taken to purchase a constructed or under-constructed residential property, while a Plot Loan is only for the plot without any construction.

Q.2. What are the disadvantages of plot Loan?

A. Disadvantages of a Plot Loan may include higher interest rates compared to Home Loan, shorter loan tenures resulting in higher EMIs, and limited tax benefits.

Q.3. Can I get a 90% loan on a plot?

A. Plot Loan is generally 75% of the plot value, but it may be up to 90% if the plot value is less than INR 75 lakh.

Q.4. Can I convert a Plot Loan to a Home Loan?

A. The Plot Loan can be easily converted to a Home Loan by submitting a completion and occupancy certificate to the lender. This way, you can avail of tax benefits on plot purchase loans on interest.

Q.5. Does a Plot Loan save tax?

A. Unfortunately, you won't be eligible for tax benefits if you plan to buy a plot and keep it as an investment without any construction. However, if you intend to construct a home on the purchased plot, you can avail yourself of tax rebates on Plot Loan and home construction loans.

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