Key Factors to Consider Before Securing a Plot Loan
Buying a piece of land to build your dream home or for future investment is a big step. While it’s exciting, getting a loan for land purchase is a bit different from a regular home loan. A plot loan (also called a loan for plot purchase) has its own rules and requirements. If you’re planning to take this route, it’s important to understand the key things before applying.
Let’s walk through what you should keep in mind to make the right decision.
1. Type of Land Matters
Not all types of land are eligible for financing. Lenders usually offer land loans only for:
● Residential plots within approved municipal or development areas
● Non-agricultural land (agricultural land is usually not financed)
● Plots with clear titles and legal approvals
Make sure the land you’re planning to buy meets these conditions. Always double-check that the land is not under legal dispute and has all the proper documents.
2. Loan Amount and Down Payment
Unlike home loans, plot loans generally come with a lower loan-to-value (LTV) ratio. This means you’ll need to pay more from your own pocket.
For example:
● If the plot costs ₹20 lakhs, the lender might offer only up to 70%-75% of that.
● You’ll have to arrange the rest (₹5–6 lakhs) as a down payment.
So before applying for a loan for land purchase, be sure your finances are in place to handle this upfront cost.
3. Loan Tenure Is Shorter
Most land loans come with shorter repayment periods compared to regular home loans.
● Home loans can go up to 30 years
● Loan for plot purchase usually has a maximum tenure of 15 years
This means your monthly EMIs might be a bit higher, so it’s important to plan your budget accordingly.
4. Interest Rates Can Be Slightly Higher
Yes, land loans often come with slightly higher interest rates than home loans. Lenders consider them riskier since the land might remain unused for a while.
So, before signing any agreement, compare interest rates offered by different banks. Even a small difference in rates can save you money over time.
5. No Tax Benefits—Unless You Build a Home
Here’s something many people don’t realize: you don’t get tax benefits just for taking a loan for land purchase. However, if you construct a house on the plot within a certain timeframe (usually 3–5 years), then you may be eligible for tax deductions like you would with a home loan.
So if tax savings are part of your plan, you might want to consider starting construction soon after buying the plot.
6. Construction Loan Option
Some lenders offer a composite loan, which combines both land purchase and construction. This can be helpful if you already plan to build a home soon after buying the plot. The interest rates on these composite loans may be lower and you may also get longer tenure options.
Final Thoughts
Taking a loan for plot purchase is a great way to invest in your future—whether it’s for building your dream home or securing land for later. Just keep in mind:
● Only approved residential plots are usually eligible
● Be ready with a higher down payment
● Compare land loan interest rates
● Plan for shorter tenure and slightly higher EMIs
● Think about building on the plot if you want tax benefits
By understanding these factors, you’ll be better prepared to make a smart and stress-free land purchase
