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Home > Home Loan > Learn > Plot Loans vs Home Loans in India

Plot Loans vs Home Loans in India

December 17, 2024
5 min read
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Estimated reading time: 5 minutes

When it comes to investing in real estate, Indian homebuyers often face a choice between a plot loan and a home loan. While both options cater to property ownership, understanding the nuances between these two loan types can significantly impact your financial planning and future investments. This blog aims to clarify these differences, enabling you to choose the right loan for your needs.


Understanding Plot Loans

A plot loan is a financing option for purchasing vacant land, intended for individuals who plan to build residential or commercial properties in the future. It provides the necessary funds for acquiring the land.

Eligibility Criteria: 

CriteriaDetails
AgeMinimum Age: 21 years
Maximum Age: 65 years
IncomeMinimum annual income of ₹2.4 lakhs
Credit ScoreMinimum score of 650
Property TypeVacant land or plot within municipal limits

Interest Rates and Repayment Terms:

Plot loans generally have higher interest rates than home loans, ranging from 8.5-12% for salaried individuals and 12-14% for self-employed. The repayment period varies between 5 to 15 years, based on the lender and borrower’s financial situation.

Tax Implications:

Plot loans do not offer direct tax benefits. If a house is built on the purchased land, tax deductions can be claimed on the construction loan under Sections 80C and 24(b).


Understanding Home Loans

A home loan is a type of loan specifically designed for the purchase or construction of a residential property. Home loans provide the necessary financing for individuals to acquire a ready-to-move-in or under-construction property.

Eligibility Criteria:

CriteriaDetails
AgeMinimum Age: 21 years Maximum Age: 70 years
IncomeMinimum annual income of ₹3 lakhs
Credit ScoreMinimum score of 650
Property TypeReady-to-move or under-construction homes

Interest Rates and Repayment Terms:

Home loans typically have lower interest rates compared to plot loans, ranging from 7% to 10% per annum. The repayment period for a home loan can vary from 10 to 30 years, depending on the lender and the borrower’s financial situation.

Tax Benefits:

Home loan interest qualifies for a tax deduction of up to ₹2 lakhs per year under Section 24, while principal repayment is eligible for a deduction of up to ₹1.5 lakhs under Section 80C.


Key Differences Between Plot Loans and Home Loans:

FeaturePlot LoansHome Loans
Purpose of the LoanPurchase of landPurchase or construction of a home
Loan Amount and Down PaymentTypically up to 75-80% of the plot valueUp to 75-90% of the property value
Repayment Period5 to 15 years10 to 30 years
Loan-to-Value (LTV) RatioGenerally lower, around 70-80%Generally higher, around 80-90%
Interest Rates ComparisonGenerally higher (8-12%)Generally lower (7-10%)
Construction TimelineNot applicableRequired for construction loans
Tax BenefitsNone directly for plot loansDeductions available for principal and interest
Processing Fees and ChargesVaries by lenderVaries by lender

Factors to Consider When Choosing Between Plot and Home Loans

  1. Financial Situation and Goals: Assess your current financial status and long-term goals. If you plan to build a home in the future, a plot loan may be suitable. Conversely, if you need a ready home, a home loan is ideal.
  2. Location and Property Market Trends: Research the property market trends in the area where you plan to invest, including land prices, construction costs, and the demand for residential properties.
  3. Construction Timeline and Costs: If you have a clear timeline for construction, a plot loan may work. However, if you prefer immediate occupancy, opt for a home loan.
  4. Long-term Investment Plans: Consider your long-term investment plans, such as whether you intend to live in the property, rent it out, or sell it in the future, as this can impact your choice between a plot loan and a home loan.

Conclusion

In conlcusion, choosing between a plot loan and a home loan requires careful consideration of your financial situation, property goals, and the unique features of each loan type. Carefully evaluate your specific needs and the property market conditions to determine the most suitable loan option for your situation.

Get a Free Consultation with Credit Dharma Today! Our team of experts is ready to guide you through the complexities of home loans and ensure you find the best rates tailored to your needs.


Frequently Asked Questions

Can I use a plot loan to construct a house on the land?

Yes, you can use a plot loan to construct a house on the acquired land. However, you will need to secure a separate construction loan or home loan for the actual construction phase.

Are there any government schemes for home loans in India?

Yes, the Pradhan Mantri Awas Yojana (PMAY) offers subsidies for home loans under certain conditions.

What documents are required for a plot loan?

For a plot loan, the required documents include proof of ownership of the plot, identity proof, and income proof. The documents required for a plot loan in India typically include:
1.Identity Proof (Passport, PAN card, Voter ID, etc.)
2.Address Proof (Passport, Voter ID, utility bill, etc.)
3.Income Proof (Salary slips, income tax returns, bank statements, etc.)
4.Proof of business (for self-employed individuals)
5.Plot documents (Sale deed, property tax receipt, NOC from the builder, etc.)
6.Other documents may be required depending on the bank or financial institution.
7.Legal documents of the land like 7/12 extract, Land registration documents, revenue records, development agreement, etc.
8.Loan application form with photograph and signature
9.Processing fee cheque
10.Any other documents as per the bank’s requirement

Is a plot loan more expensive than a home loan?

Yes Plot loans usually have higher interest rates (8-15% per annum) compared to home loans (7-10%), varying by lender and borrower creditworthiness. It is important to shop around and compare rates from different lenders to find the best deal.

Can I take a joint loan for a plot purchase?

Yes, many lenders allow joint applications for plot loans, which can enhance eligibility.

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