What is a plot loan? Everything you must know about it

February 10, 2022

Those looking to avail a plot loan for the purpose of building a home usually avail the funds easily if they meet the lender's eligibility criteria as almost all the leading banks in India provide a Plot Loan, also called land loan. Here, we will discuss different aspects of land loan or plot loan.

Plot loan: Purpose and definition

Plot loan is availed to purchase a land piece. Financial institutions provide financial help to the buyers to buy land plots and parcels on which they have an intention to construct a residential home. Remember here plot loan is provided to the seeker for this purpose only. In the event the applicant plans to form a commercial unit, or for any agricultural reasons, he will not be able to make an application for the plot loan or land loan provided by financial institutions. Thus, it is crucial for the seekers to understand the distinction between plot loan and home loan. SBI Plot Loan is one of the lenders that provide this loan at the lowest interest rate.

Plot loan
Purpose Purchasing plots or purchasing plots and constructing homes on it
Not eligible for Purchasing plots in rural regions
Rate of interest It may be higher than the regular home loan rate of interest
Tax benefit Available as per Section 24 (b) and Section 80 C just if the home is also built

The major distinction between home loan and plot loan

You can apply for a home loan in India to purchase an already constructed home or to build a home on a land piece. On the other side, a plot loan is taken up to purchase just the piece of plot or land. Other dissimilarities of the loan products are mentioned below:

Different types of plot loan

Plot loan has 2 different varieties: Loan to purchase residential plot and loan to purchase a plot and then construct a house. A bank is more forthcoming in case the land loan is availed to acquire the plot that is being sold by the development bodies like DDA (Delhi Development Authority), CIDCO (City & Industrial Development Corporation), BDA (Bangalore Development Authority) etc.

Plot loan benefits

Besides the fact that the land loan or plot loan provide seekers with an option to buy lucrative land piece via simple finance access at attractive lending interest rates, land loans even allow them to avail tax deductions as per Section 24 and Section 80 C of the IT Act. The next plot loan feature is that the borrower will not require paying any prepayment fees if they have the potential to prepay the plot loan before the completion of the loan repayment tenure.

Plot loan eligibility

For availing of the plot loan, the plot loan seeker should be an Indian resident, earning an income via a job or through self-employment. He/she must be over 18 years of age when applying for this plot loan. Lenders like SBI plot loan, ICICI bank, etc., have set a specific age for the seekers for approving the plot loan. While different lenders have differing norms, they generally do not provide plot loans to individuals over 65 years of age.

Necessary documents for plot loan approval

Along with a duly filled up plot loan application form, applicants must submit a self-attested photocopy of different documents asked by the bank to grant them a plot loan. Besides age, identity and address proof, applicants require submitting documents linked to proof of their income and all the land linked papers. While distinct lenders may ask for distinct documents, they will expect the home loan seeker to produce all of them.

Documents for proofing your age, identity and address are:

∙       Three passport size photos

∙       Aadhaar card

∙       Voter ID card

∙       Passport

∙       Driving license

∙       Water or electricity bill

∙       Copy of bank statement reflecting your address

∙       Sale deed

∙       Rent agreement

Documents that serve as income proof for the salaried are:

∙       Salary slips for the past 3 months

∙       PAN card

∙       Copy of bank statements of last 3 months (salary account)

∙       Form 16 of last 2 years

Documents that serve as income proof for the self-employed are:

∙       Certificate of business

∙       PAN card

∙       Past 3 years IT returns with P/L account statement, balance sheets, which must be audited and duly certified by a CA.

∙       Bank statement for the past 12 months, personal as well as business.

Property document

∙       Copy of the buyer agreement/allotment letter

∙       Title deeds involving previous property document chain in resale cases

∙       Sale agreement

∙       Sale deed

∙       Stamp duty and registration receipt

∙       Development agreement

∙       NOC from the builder

Remember that the above stated is indicative, and the lenders may ask for any additional documents when evaluating your plot loan application.

How can you apply for a plot loan?

You can approach any branch or apply for a plot loan through an online route via the official bank’s portal.

Maximum plot loan approved amount.

Lenders basically provide 75-90 % of the land or plot purchase value as per their loan to value ratio. Thus, applicants must arrange between 25 % and 10 % of the loan proceeds from their own funds. PNB is one such plot lender that asks the applicants to arrange just 10 percent of the buying cost, including the registration charges and stamp duty, just on their own if they meet specific conditions.

However, lenders set a cap on the highest loan proceeds they can offer as a plot loan. SBI plot loan, for example, allows up to Rs 15 crore in the form of land loan via their realty home loan option. On the other hand, ICICI bank provides land loans for plots ranging anywhere between Rs 8 lakh and Rs 3 crore. It means even if you hold the capacity to repay Rs 1.20 crore to buy the plot of Rs 4 crore (Rs 1.20 crore is 30 percent of the Rs 4 crore), the bank will not entertain this request of yours.

Which lenders provide a plot loan?

All leading PSUs usually offer plot loans. Some private banks allow applicants to avail of plot loans. Some of the leading lenders offering plot loans include SBI plot loan, HDFC, PNB, ICICI Bank and others. Remember that all such lenders provide a plot loan to purchase a plot and then construct a unit on the bought plot.

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