Top Financial Institutions for Plot Loans in India

Purchasing a plot of land can be a significant investment, whether for building a dream home or as a strategic financial move. Land investments have always been seen as valuable assets, providing a place for potential development and a stable investment in one's portfolio. However, financing such a purchase often requires a plot loan. A plot loan, distinct from a home loan, caters specifically to those looking to buy land. This type of loan is essential for individuals planning to construct a house in the future or simply looking to invest in land. Given the real estate market's dynamics, securing a favorable plot loan can be challenging without the right information and preparation.

Understanding the intricacies of plot loans, including the best financial institutions offering them, is crucial for making informed decisions. Therefore, this guide simplifies the process and provides a comprehensive overview of plot loans in India. By the end of this blog guide, you will have a thorough understanding of the plot loan landscape in India, empowering you to make informed decisions and secure the best possible financing for your plot purchase. 

Table of Contents

• Plot Loan and How is it Different from a Home Loan
• Differences Between Plot Loan and Home Loan
• Top Banks for Plot Loans in India
• Tax Benefits on Plot Loans in India
• Eligibility Criteria for Plot Loan
• Documents Required for Plot Loan

What is a Plot Loan and How is it Different from a Home Loan?

A plot loan, also known as a land mortgage loan, is a financial product designed to help individuals purchase a plot of land. Unlike a home loan, which is used to buy an already constructed property or to fund the construction of a house, a plot loan is specifically for buying land.

Suggested read: Plot Loans vs. Home Loans

Differences Between Plot Loan and Home Loan

1. Purpose: The primary difference between a plot loan and a home loan lies in their purposes. While home loans finance the purchase or construction of a residential property, plot loans are exclusively for purchasing land. This distinction is crucial as it influences the loan terms and conditions.
2. Usage Restrictions: Home loans can be used for buying or building a home, while plot loans do not cover construction costs. This means that if you plan to construct a house on the purchased land, you will need to apply for a separate home construction loan.
3. Interest Rates: Generally, plot loan interest rates are slightly higher than home loan interest rates. This is because lenders consider plot loans riskier due to the speculative nature of land purchases.
4. Tax Benefits: Home loans offer more extensive tax benefits compared to plot loans. For instance, under Section 80C of the Income Tax Act, the principal repayment of a home loan is eligible for a deduction. Additionally, the interest payment on a home loan qualifies for a deduction under Section 24(b). 

However, the tax benefits on plot loans are more limited and are only available if the plot is used for constructing a house.
Understanding these differences helps borrowers choose the right type of loan for their specific needs. It is important to assess your financial situation and plans before deciding between a plot loan and a home loan.

Suggested read: Flats vs Plots

Top Banks for Plot Loans in India

Choosing the right lender for a plot loan is essential for securing the best interest rates and terms. The table below summarizes the top banks in India offering plot loans, including their interest rates, maximum tenure, processing fee, and overall affordability.

1. HDFC Bank

HDFC Bank offers competitive interest rates ranging from 8.70% - 9.95% with a maximum tenure of 15 years. The processing fee is up to 1.50 % of the loan amount, making it an affordable option for borrowers. HDFC Bank is known for its customer-centric approach, offering a seamless application process and quick disbursement of funds. Additionally, HDFC Bank provides flexibility in repayment options, allowing borrowers to choose between different EMI schemes that suit their financial situation. The bank's extensive branch network and efficient customer service make it a convenient choice for plot loan seekers.

2. State Bank of India (SBI)

SBI is known for its moderate interest rates between 9.45% - 9.85% and a maximum tenure of 10 years. The processing fee is relatively low, up to 0.35% of the loan amount, which makes SBI a favorable choice for many borrowers. SBI's plot loan product, called SBI Realty, is designed to provide maximum benefits to borrowers, including the option of a separate home loan for construction on the purchased plot. The bank's robust online portal and mobile app allow for easy application tracking and management of the loan account, adding to the convenience of borrowers.

3. ICICI Bank

ICICI Bank provides plot loans with interest rates ranging from 8.50% - 9.25%. The maximum tenure offered is 15 years, and the processing fee is up to 1% of the loan amount, ensuring high overall affordability. ICICI Bank is renowned for its innovative digital solutions, offering a fully online application process that reduces paperwork and expedites loan approval. The bank also provides a pre-approved loan facility for existing customers, which can significantly shorten the processing time. With personalized loan offers and a dedicated relationship manager for assistance, ICICI Bank ensures a smooth borrowing experience.

Suggested read: Home Loan for Land Purchase

4. Axis Bank

Axis Bank offers plot loans with interest rates between 8.75% - 9.19% and a maximum tenure of 20 years. The processing fee is up to 1% of the loan amount, making it an attractive option for those looking for long-term financing. Axis Bank's plot loan, known as "Axis Bank Land Loan," comes with flexible repayment options and a grace period for construction. The bank's extensive branch network and 24/7 customer support ensure that borrowers have access to assistance whenever needed. Axis Bank also offers competitive rates and special discounts for salaried individuals and premium customers.

5. PNB Housing Finance

PNB Housing Finance provides plot loans with interest rates ranging from 9.00% - 9.50%. The maximum tenure is 20 years, and the processing fee is up to 1.25% of the loan amount. This makes PNB Housing Finance a moderate affordability option. PNB Housing Finance is known for its transparent loan processes and customer-friendly policies. The company offers doorstep service for loan documentation and disbursement, ensuring convenience for borrowers. Additionally, PNB Housing Finance allows transferring an existing plot loan from another lender to avail of better rates and terms, making it a flexible choice for borrowers.

These banks offer competitive rates and terms, making them some of the best options for a loan for plot purchase. Comparing these options will help you find the best lender to suit your financial needs and goals. 

Tax Benefits on Plot Loans in India

Tax benefits on plot loans are more limited compared to home loans, but understanding them can still lead to significant savings. Here are the key tax benefits associated with plot loans in India:

1. Interest Payment Deduction: Tax benefits on interest payments can be claimed if the plot is used for constructing a house. The deduction is available under Section 24(b) of the Income Tax Act after the construction is complete. This means that you can claim a deduction on the interest paid during the pre-construction period in five equal installments after the completion of the construction.
2. No Deduction on Principal Repayment: Unlike home loans, there is no tax deduction available for the principal repayment of a plot loan. This is an important consideration when deciding between a plot loan and a home loan.
3. Construction Period Deduction: If you construct a house on the plot within five years of purchasing it, the interest paid during the construction period can be claimed in five equal installments after the completion of the construction. This benefit can significantly reduce your taxable income, providing substantial savings.

These benefits make it financially prudent to consider constructing a home on the plot within the stipulated period to avail of the tax advantages. It is also important to keep proper records of all interest payments and construction-related expenses to ensure the smooth processing of tax benefits.

Common Eligibility Criteria for Plot Loan

Eligibility criteria for plot loans vary from lender to lender, but some common factors influence loan approval. Understanding these criteria can help you prepare better and increase your chances of securing a loan.

1. Age: The borrower should typically be between 18 to 65 years of age. This age range ensures that the borrower has sufficient working years to repay the loan.
2. Income: A stable and regular source of income is crucial. Lenders often have minimum income requirements that must be met. This ensures that the borrower has the financial capacity to repay the loan.
3. Credit Score: A good credit score (usually 700 and above) improves the chances of loan approval and may help secure better interest rates. A high credit score indicates that the borrower has a good credit history and is likely to repay the loan on time.
4. Employment: Salaried individuals should have a minimum work experience of 2-3 years, while self-employed individuals should have a stable business for at least 3-5 years. This ensures that the borrower has a stable income source.
5. Property Location: The plot should be within the lender’s approved locations, usually within municipal or city limits. This ensures that the property is legally approved and has all the necessary permissions for construction.

Using a plot loan eligibility calculator provided by most lenders on their websites can give you a preliminary idea of your eligibility. These calculators consider factors like income, age, and existing liabilities to provide an estimate of the loan amount you can qualify for.

Suggested read: YEIDA Plot Scheme

Documents Required for Plot Loan

To apply for a plot loan, you need to provide several documents to support your application. Here is a comprehensive list of commonly required documents:

1. Personal Documents

• Identity Proof: Aadhaar card, PAN card, passport, voter ID, or driving license. These documents verify the identity of the borrower.
• Address Proof: Utility bills, ration card, passport, or rental agreement. These documents verify the address of the borrower.

2. Financial Documents

• Income Proof: Salary slips for the last 3 months, Form 16, or ITR for the last 2-3 years. These documents verify the income of the borrower.
• Bank Statements: Bank account statements for the last 6 months to 1 year. These documents provide a record of the borrower's financial transactions.

3. Property Documents

• Sale Agreement: A copy of the agreement to sell the plot. This document outlines the terms and conditions of the plot purchase.
• Title Deed: Legal documents establishing ownership of the plot. This document verifies that the seller has the legal right to sell the plot.
• Approved Layout Plan: Approval from the local municipal authority. This document ensures that the plot is legally approved for construction.
• Encumbrance Certificate: This certificate shows that the property is free from legal liabilities. This document verifies that the plot has no outstanding loans or legal disputes.

Having these documents ready can expedite the loan approval process and ensure a smooth application experience. It is important to keep both original and photocopies of these documents as lenders may require both for verification.

Securing a plot loan requires careful consideration of various factors, including the choice of lender, understanding the eligibility criteria, and preparing the necessary documents. By selecting one of the top financial institutions for plot loans in India, you can benefit from competitive interest rates and favorable terms. Additionally, being aware of the limited but significant tax benefits can help you maximize your financial advantages.
Always use tools like a plot loan eligibility calculator to assess your readiness and explore the best options for your loan for plot purchase. With the right approach, financing your plot purchase can be a seamless and rewarding experience. By planning and choosing the right lender, you can make the process of buying a plot of land a smooth and successful endeavor. Whether you are buying land for building your dream home or as a long-term investment, understanding the intricacies of plot loans will help you make informed decisions and achieve your financial goals.

FAQs about Top Banks for Plot Loans in India