What is Plot Loan: Everything You Need to Know

Introduction

Acquiring a plot of land is often the first step toward constructing a home or building a real estate portfolio. However, purchasing land requires a significant financial outlay, which is where plot loans come into play. Understanding the ins and outs of this loan type ensures that you are well-prepared before making your next big investment.

What is a Plot Loan or Land Loan?

As the name suggests, a plot loan, or a land loan, provides the funds needed to buy land with the flexibility to develop it later. It is ideal for those looking to invest in land as an asset, with the flexibility to decide on its use in the future. However, lenders typically restrict these loans to plots within municipal boundaries or areas designated for residential purposes.

A plot loan usually has a shorter tenure than a home loan and may carry a slightly higher interest rate. However, this loan gives you the flexibility to develop the land at your own pace or hold it as an investment.

Example: For instance, Ms. A is a salaried professional with a strong credit score of 830 and plans to purchase a plot of land in her hometown to build her dream home in the future.

Since her credit score is above 825, she qualifies for an interest rate starting from 9.50%, which falls within the range of 9.50% to 10% for salaried or self-employed professionals. Ms. A applies for a loan of ₹30 lakh to ensure it stays within the category of loans up to ₹35 lakh, which offers competitive floating interest rates.

With interest rates and terms varying based on factors like credit score, loan amount, and borrower profile, plot loans offer several advantages for individuals looking for land purchases. Here are the key advantages of taking a plot loan.

Benefits of Taking a Plot Loan

• Flexible Usage: Unlike home loans, which are restricted to residential property purchases, a loan for land purchase can be used for both personal and investment purposes. This flexibility makes it ideal for long-term planners who want to acquire land now and develop it later.
• Easier to Obtain: Plot loans often have more lenient approval criteria than construction or home loans since the land itself secures the loan. Lenders will extend credit limits if the land is in a high-value area.
• Lower Loan Amount: Since plot loans typically cover only land purchases and not construction costs, the loan amount tends to be smaller, making it easier to manage and repay.
• Tax Benefits: Under Section 80C of the Income Tax Act, 1961, plot owners can claim a tax rebate of up to ₹1.5 lakh on the principal repayment of a plot loan, including any home loan, within a financial year. While tax benefits are available only if the plot is used for residential purposes, once you start construction, you can claim deductions on the interest paid under Section 24(b) of the Income Tax Act.
• Longer Repayment Tenure: Many lenders offer extended repayment periods for plot loans, which can result in lower monthly installments and greater affordability.

To fully benefit from a plot loan, you need to understand the eligibility criteria that determine your qualifications and loan terms.

Eligibility Criteria for a Plot Loan

To be eligible for a loan to buy land, applicants must meet specific criteria set by the lender. Although these criteria may vary slightly between financial institutions, the following factors are typically considered:

1. Profession: The borrower should be a Salaried individual, Self-employed, or Business owner.
2. Credit Score: To qualify for attractive interest rates, a borrower’s credit score must be at least 650. Interest rates increase as the credit score decreases.For example, a borrower with a credit score of 750 can qualify for an interest rate between 10.25% and 10.75% for a plot loan. On the other hand, borrowers with a credit score of 650 or below may face interest rates as high as 11.75% to 12.25%.
3. Age: Borrowers should not be older than 70 at the time of loan maturity.
4. Loan Tenor: The loan term length determines the loan eligibility amount.
5. Land Type: Lenders usually provide financing to buy land within municipal limits, while agricultural land is typically excluded unless the borrower is a farmer.

For example, a salaried individual earning ₹60,000 per month with a credit score of 700 can qualify for a plot loan with an interest rate between 10.85% and 11.35%, depending on the lender. At the age of 35, they can opt for a 30-year tenure, making them eligible for a loan amount of ₹39,24,580, with a manageable EMI of ₹33,000 if the interest rate is 11.34%. Provided the plot is within municipal limits, this application is likely to meet lender requirements easily.

Once you know that you meet the eligibility requirements for a plot loan, the next crucial step is to prepare and submit the necessary documents to verify your identity, financial stability, and the land's legal status.

Documents Required for Plot Loan Application

When applying for a plot loan, you’ll need to submit various documents to the lender. These documents help verify your identity, financial standing, and the land’s legal status. Commonly required documents include:

For Salaried Employees:

• Duly filled Application Form with Photograph
• Age Proof (PAN Card, Passport, Any other Statutory Authority Certificates)
• Residence Proof (Passport, Telephone Bill, Driving License, Ration Card, Election Card, Any other Statutory Authority Certificates)
• Education Qualifications - Latest Degree
• Latest Salary-slips for 3 months
• Form 16 for the last 2 years
• Last 6 months Bank Statements (salary account)
• Photocopy of Land Documents: Approved plot layout, land ownership documents, and NA (non-agricultural) certificate, if applicable

For Self-Employed/Professionals:

• Duly filled Application Form with Photograph
• Age Proof (PAN Card, Passport, Any other Statutory Authority Certificates)
• Residence Proof (Passport, Driving License, Ration Card, Telephone Bill, Election Card, Any other Certificate from Statutory Authority)
• Education Qualifications – Latest Degree (for professionals)
• Certificate & Proof of business existence along with Business Profile
• Last 3 years ITR (Income Tax Returns) (self and business) with Profit & Loss Account
• Duly certified/audited Balance Sheets by a Chartered Accountant
• Last 12 months Bank Account Statements (self & business)
• Photocopy of Land Documents: Approved plot layout, land ownership documents, and NA (non-agricultural) certificate, if applicable

Click here to download the Application Form

Suggested Read: Everything You Need to Know About Home Loans for Self-Employed

The next step is to follow a structured application process to secure your plot loan seamlessly. Let’s explore.

How to Apply for a Plot Loan: Step-by-Step Process?

Here’s a simple step-by-step guide to help you apply for a plot loan:

1. Research and Compare Lenders: Research various lenders offering loans to buy land. Compare interest rates, tenures, and loan-to-value ratios to find the best deal.
2. Check Eligibility: Review each lender's eligibility criteria and check your credit score to ensure you meet the basic requirements.
3. Prepare Documents: Gather all the essential documents, including identity proof, income proof, and property-related papers, to ensure a smooth application process.
4. Submit Application: You can apply for the loan either online or by visiting the lender’s branch. You must fill out an application form and submit all relevant documents.
5. Loan Approval: After reviewing your application, the lender may conduct a personal discussion and property verification. The approved plot loan amount will be directly disbursed to the seller or your account if approved.

While applying for a plot loan, it's crucial to keep a few key factors in mind to ensure you secure the best possible terms and manage the loan effectively.

Important Tips for Plot Loan Applicants

• Maintain a Good Credit Score: A credit score above 700 increases the chance of loan approval and secures lower interest rates.
• Choose the Right Lender: Always select a land purchase lender with competitive interest rates and favorable terms. Be sure to compare multiple lenders before deciding.
• Consider Loan Tenure: Choose a loan tenure that balances affordability and interest rates. Shorter tenures usually have lower interest rates but higher EMIs.
• Have a Clear Plan: Whether you plan to build immediately or hold the land as an investment, having a clear financial plan will help you manage your loan effectively.

If you're looking to secure a plot loan, PNB Housing offers a practical and reliable solution with interest rates starting at just 9.50%. Their floating interest rates for plot loans are comparable to those offered for home loans, providing flexibility and affordability. PNB Housing ensures a hassle-free and efficient loan application process that allows you to apply online within just 3 minutes. With a strong reputation for transparency and customer-focused services, PNB Housing is the ideal partner for securing the most competitive plot loan.

Conclusion

A plot loan can be an excellent way to secure land for future construction or investment purposes. Understanding the advantages, eligibility standards, and application process will help you make informed decisions. Always compare lenders, maintain a good credit score, and ensure all documentation is accurate for a hassle-free experience. By adhering to these steps and tips, you can simplify the process of acquiring a loan for land purchase and make an informed decision.

FAQs

What is the typical interest rate for a plot loan?

Interest rates for plot loans typically range from 10% to 12%, depending on the lender, the security they provide, your profession, and your credit score. Always compare different lenders to secure the best rate.

Can I prepay my plot loan?

Yes, most lenders allow the partial or full prepayment of plot loans. However, some may charge prepayment penalties, so check with your lender.

What are the repayment options for plot loans?

Repayment options typically include Equid Monthly Instalments (EMIs) over a set tenure. Depending on your choices, you can select between fixed or floating interest rates.

How can I enhance my chances of getting a plot loan approved?

Maintaining a high credit score, providing all necessary documents, and choosing land within municipal limits can improve your chances of getting an approved plot loan.