While choosing a loan, you need to make sure that you are selecting the right type of loan. This would make the borrowing cheaper and would make it easier for you to repay. Interestingly, there are several types of loans to choose from, which are precisely tailored to specific needs.
Let’s have a look at different types of loans available.
- Personal Loan
- Home Loan
- Plot Loan
- Gold Loan
- Educational Loan
- Vehicle Loan
And the list goes on.
If you are planning to buy land, then opting for a plot loan would be the best choice. As the name suggests, plot loans or land loans are a type of loan offered by banks for purchasing a plot of land. The plot will be a non-agricultural piece of land which is bought under the context of constructing a house on it.
Banks usually offer land loans up to 60%-70% of the land’s value, and the rest amount is to be paid by the applicant as a down payment. On successfully availing the loan, you must compulsorily finish your house construction within two years.
To get a better understanding of it, let’s look at how a plot loan is different from other types of loans.
How Does Plot Loan Differ From Other Loans?
Loan To Value (LTV)
The Loan To Value (LTV) decides the amount of money you can borrow with respect to an asset. For instance, if you are planning to buy a new car, then the LTV will range between 80%-90%. This means you can get 80%-90% of your car’s value as loan and you need to pay only the 10%-20% of the entire amount.
While the LTV for home loans are between 80%-85%, for plot loans, it is significantly lower and would fetch a maximum of 70%.
A plot loan is characterised by a shorter tenure of 15-20 years. Home loans, on the other hand, can have repayment tenures up to 30 years.
- Down Payment
Due to lower LTV, plot loans have significantly higher down payments. In most cases, this would be nearly 30% of the plot value.
- Interest Rates
Plot loan interest rate is significantly higher, around 8%-12%, as compared to home loan interest rates of around 7%-10%.
- Tax Benefits
Unfortunately, plot loans will not bring you any tax benefits, unlike a home loan. However, if you are planning to construct a house on the plot, you are eligible to avail the tax benefits.
Unlike house loans, plot loans will be sanctioned only if the respective plot is within the limits of a municipality or corporation.
What Are The Eligibility Requirements For A Land Loan?
The following factors decide the eligibility for availing a land loan:
- Age of applicant
- Credit score
- Monthly income
- Work experience
- Job security
As discussed, plot loan interest rate is higher, and it is relatively challenging to get approved as compared to other loans. However, if you have a clean credit record and a fixed source of income, the chances are that it will be easily sanctioned. To make the process faster and hassle-free, contact a trusted loan provider and submit the required documents.