Some people fancy apartments, whereas others prefer to build their houses from scratch. Buying a piece of land becomes a prerequisite to constructing a home on your terms. Investing in a plot of land is always a good idea, regardless of when you want to build the house. Real estate investments are among the most secure and profitable options. It is among the few assets that can generate exponential returns over the years. However, the land is a limited resource, and it’s best to secure yours as soon as possible. Opting for a plot loan can help you arrange funds to purchase the land. Read on to learn more about plot loans.
What is a plot loan?
A plot loan or land loan is a type of secured credit product offered by financial institutions to people who want to buy a plot. The loan can be used only for purchasing land and not for other expenses. If you are short on funds for your dreamland, it’s best to take a plot loan. One can easily repay the loan amount through affordable EMIs, as these are long-term loans. In most cases, the tenure for plot loans is up to 15 years. However, some financial institutions can increase this limit. The loan-to-value ratio for plot loans is up to 75%. Plot loan interest rates are similar to a home loan rate.
Plot loan eligibility and documentation
Now that we understand what a plot loan entails let’s look into its eligibility criteria and documentation requirements.
Eligibility for plot loans
- The age of the plot loan applicant must be greater than 21 years at the time of application and shouldn’t exceed 70 at maturity.
- The applicant must be an Indian National or Resident.
- The loan applicant must be a salaried employee or self-employed.
- The loan applicant must have a stable income source.
- The applicant’s credit score should be over 750 points.
Documentation for plot loans
- Duly filled plot loan application form
- Proof of applicant’s age
- Proof of applicant’s primary residence
- Academic qualification proof
- Proof of stable income
- Property documents, including approved plans, a title deed, etc.
Benefits of taking a plot loan
Plot loans can bridge the gap between you and the dreamland or the house you want to build. It can help you get the ideal land in a good neighborhood. Moreover, you can own land using a plot loan even if your savings are low. Here are some significant benefits of taking a plot loan.
1. Low cost of borrowing funds
The cost of borrowing funds using a plot loan is much less than other loan products like a personal loan. It’s because plot loans are secured credit products, and the risk for the lending party is much lower. Therefore, they offer the loan amount at relatively lower interest rates. Although the exact interest rate varies on your credit profile, institutions like PNB Housing offer plot loans at interest rates starting from 7.75% p.a.
2. Choose a safe neighborhood
Paying for the entire plot value at once is not everybody’s cup of tea. Therefore, many people have to compromise on the neighborhood and facilities while buying a piece of land. However, this can be easily fixed using plot loans. You can make a higher down payment amount and choose to finance the remaining value using a plot loan. An affordable EMI plan can help you easily repay the borrowed amount.
3. Create the dream house from scratch
Ready-to-move-in apartments and houses might seem convenient. However, you have to compromise on a lot of things. You don’t have much flexibility to design it as per your needs. Reconstructing can cost a fortune and is also time-consuming. Buying a plot provides the flexibility to build the dream house on your terms. You are in complete control of how the house will appear, what appliances and fixtures are used, the level of security, the number of rooms, the size of rooms, etc.
4. Tax benefits
Plot loans are also great for saving big on tax expenses. As per the Indian Income Tax Act, you are eligible for annual deductions on the interest component up to INR 2,00,000. As per Section 80C, borrowers are also eligible for yearly deductions (up to INR 1,50,000) on the principal repayment component. There are many other benefits of a plot loan.
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