Land and jewelry are two age-old avenues of investments for Indians. Even in this day and age, a majority of the population prefers to invest in land rather than other comparative volatile options such as stocks and bonds.
Regardless of whether one wants to purchase a piece of land as an investment or a plot to build their house, it is always a rather expensive affair. A plot loan also referred to as land loan, is a viable source of capital. There are numerous benefits of a loan to buy a plot which makes it an attractive proposition for land buyers.
A Brief Overview of Plot or Land Loans
As mentioned above, plot loans are unique financial products that ease the burden of buying land in India. It is often confused with a home loan, but the two are entirely different products. The fundamental difference lies in the purpose of these loans.
While a home loan is primarily availed to build a house or purchase an existing apartment, a plot loan is used to buy the land on which to build the house. Construction of the house has to be undertaken subsequently using a different source of financing.
A loan to buy land is comparatively harder to obtain as the risk for the lender is substantially higher. In most cases, it is a secured loan. Home loans, on the other hand, are readily available from a financial institution. You may use these loans for the construction of your house as well as meet any repair or renovation costs.
Features of Plot Loans
A loan to buy a plot comes with several intrinsic features and benefits. There are numerous pointers which you need to consider before you avail such a loan. Viz. –
- Loan To Value Ratio (LTV)
Loan to value ratio refers to the amount of money you can avail as the loan compared to the total value of the property. It typically ranges between 60 to 70%. So, if you want to avail of a loan for a land purchase, be prepared to fund the remaining 30-40% as a down payment.
- Type of Property And Location
Typically, a plot loan can be availed to purchase only a residential plot. It also has to be in the jurisdiction of the relevant Municipality or Municipal Corporation.
- Interest Rates
The interest rates for a plot purchase loan are typically comparable to housing loans. It generally ranges between 8.7% and 12%, which is considered relatively low.
Plot loans usually come with high tenors of 15 to 20 years. Such tenors also mean that the EMI is low, however, the total interest part paid is high.
- Pre-Payment Charges
Most plot loans do not incur any penalties for part pre-payment. This feature becomes handy if you have extra funds available for such a pre-payment. It will also reduce either your tenor or EMI.
- Tax benefits
Just like the tax benefits for the under-construction property, plot loans also come with its fair share of tax exemptions.
Documents Required For Availing a Plot Loan
You should keep the following documents ready at your disposal in case you want to apply for a loan to buy a plot. Note that documentation requirements may vary between financial institutions and are subject to change.
- Proof of identity
- Applicant’s photograph
- Residence proof
- Bank statement for the previous 6 months
- Salary slip for the previous 3 months
- Tax records of the land
- ‘No Encumbrance’ certificate
- Proof of ownership of the land
Purchase the land of your choice with the help of a plot loan. A wise investment in land can garner more revenue than most other alternatives in cash and kind.