In case you are planning on purchasing land but do not want to splurge all your savings, a plot loan could be a smart choice. But before getting your hands on one, you should be informed of the current plot loan interest rate for the year 2023 offered by the top lending institutions. Read on to know how a plot loan works and how you can gain from the benefits it offers at such affordable interest rates.
What Is a Plot Loan?
A plot loan, also known as a land loan or a loan against land, is financial aid offered to borrowers by banks and financial institutions to purchase a plot of land for residential purposes. The repayment tenor for such loans usually spans over 20-30 years with the rate of interest starting at just 7.85% per annum.
How Does a Plot Loan Work?
The loan amount provided for the acquisition of a piece of land by the lending institution has to be repaid in Equated Monthly Installments or EMIs before the end of the tenor. The borrowed amount can be used for purchasing land on which you wish to build a house in the future.
Different Types of Plot Loans
Banks and financial institutions offer the following two types of plot loans in India –
Composite Loans
This type of land loan is provided for the construction of a residence within three years of purchasing the loan. The lender allows 60% of the total loan amount to be used for purchasing the plot and the remaining 40% for constructing the house. The repayment tenor may extend up to 30 years.
Plot Purchase from Statutory Authority
This refers to the amount taken and utilized for purchasing land from government bodies and local development authorities. In such cases, lenders offer to pay up to 75% of the land value for a period of up to 15 years.
Current Plot Loan Interest Rate 2023
The rate of interest charged on land loan are subject to changes depending on the borrower’s profile, credit score, and changing market trends. However, currently, the plot loan interest rate in India ranges from 7.85% to 12%. The interest rate for a plot loan tends to be slightly different from a regular home loan interest rate due to the high risk involved. To make sure that you get the most competitive rates on land loans, it is important to study the market and compare different lenders.
Potential borrowers can use an online loan EMI calculator to get an estimate of the monthly EMI and the total payable interest. This is a simple process that involves entering just the plot loan interest rate, principal amount, and the total tenor. The calculator does the rest of the work as it shows instant results based on a mathematical formula.
Top Benefits & Features of a Plot Loan
Apart from attractive interest rates, a land loan also comes with various features that customers can make utilize to their best potential. Here are some of the top benefits –
Larger Loan Amount
With such a loan, borrowers have the flexibility of funding up to 90% of the principal amount to purchase the plot of land.
Longer Repayment Tenor
The repayment period offered on land loans is relatively higher than others, extending up to 30 years.
Plot Loan Tax Benefit
Under Section 80C of the Income Tax Act, borrowers can avail of a deduction of up to INR 1,50,000 on annual taxable income on plot loans dealing with the principal repayment and not with the interest component. Under Section 24 of the same Act, a deduction of up to INR 2,00,000 per year can be availed on the interest payable once the house is constructed on the purchased plot and occupied by the borrower. In case the property is rented out, no such benefits will come to play.
Land Loan Balance Transfer Facility
This works the same way as a home loan balance transfer. Borrowers can use this facility to transfer their existing plot loan to a new plan offering a lower interest rate. This feature is offered by most lending institutions based on the borrower’s eligibility.
Zero Prepayment Penalty
Most lenders have a ‘No Prepayment Penalty’ policy in place wherein the borrower does not have to pay any additional charges or penalties for pre-paying the loan amount. Part-prepayments make the loan repayment process easier as it reduces the EMI burden. Therefore, if you have surplus money or have recently gotten an appraisal or promotion, you may choose to utilize the funds into prepaying the loan amount.
Low Processing Fee
The processing fee charged on a plot loan is typically low and negligible, so borrowers need not worry about shelling out a huge amount out of pocket.
Minimal Documentation
With the majority of lending institutions having an online presence, loan application and verification procedures are easily carried out at the borrowers’ convenience nowadays. Most of the paperwork can be done online and thus, the whole process involves minimal documentation.
Documents Required to Apply for Plot Loan
Borrowers looking to apply for a land loan must keep the following documents ready –
- A duly filled application form
- Age proof & ID proof
- Proof of income
- Address proof
- Documents related to the land or plot
- Approved drawing/layouts of the plot
How to Apply for a Plot Loan
The steps to apply for a plot loan are simple –
Step 1: Go to the lender’s website
Step 2: Proceed to the loan application section
Step 3: Enter your personal and contact details
Step 4: Verify your identity with the OTP (One-Time Password) sent to the registered mobile phone number.
Step 5: Use a plot loan calculator to check the plot loan interest rate and the maximum amount you can avail of for a land loan. Choose a repayment tenor as per your flexibility.
Step 6: Key in your income and employment details, as well as details related to the land.
Step 7: Wait for a representative to get in touch with you for final verification and scrutiny.
Step 8: Get the loan amount sanctioned and disbursed within 3-4 working days.
Summary
A land loan is a beneficial aid specially designed for borrowers looking to purchase a plot of land for a home. Keeping the current plot loan interest rate in mind, one can compare various lenders before settling for one that suits them the best. Furthermore, the host of exciting features and benefits along with the ease of application and minimal documentation is all the more reasons to consider such a loan. However, borrowers must be mindful of their loan eligibility and credit score to stand the best chance of getting a loan sanctioned.
