One kind of loan that can be used to buy a residential parcel of land is a plot loan. The only way it differs from a standard house loan is how the money should be used. In addition, a conventional house loan can be obtained to finance the building of a house on that property. This blog is about Know the Difference: Plot Loan Vs Home Loan.
Most Indians have aspirations of becoming homeowners. Typically, home purchasing is expensive and calls for financial support through a home loan from banks or housing finance companies (HFC). For those who live in metropolitan areas and big cities, this is typically a builder-developed single-family home or a prefabricated multi-story apartment.
Furthermore, a home loan can be obtained to build a house on a plot of land according to one’s preferences. Additionally, some lenders provide a composite plot loan that can be used to pay for both the purchase of a plot and the building of a house on it.
What is a Plot loan?
As the name implies, a plot loan is a housing loan provided by lending organizations, commonly known as “lenders,” to buy a plot of land to build a house.
Plots of this type can be purchased directly from government agencies like the Delhi Development Authority (DDA), Bangalore Development Authority (BDA), City and Industrial Development Corporation (CIDCO), Jaipur Development Authority (JDA), Maharashtra Housing and Area Development Authority (MHADA), and others, or they can be purchased from an individual or a private developer.
Though it can only be used to purchase residential land or plots of land rather than prefabricated homes, it is comparable to a standard home loan. Like a home loan, the lender grants this loan only after carefully evaluating the applicant’s eligibility and the property.
Eligibility for a Plot Loan and Home Loan
Eligibility of the Applicant: Like with a home loan, the lenders evaluate the applicant’s eligibility before awarding a plot loan. Eligibility is, in essence, a measurement of the applicant’s ability to repay the loan based on income, income stability, credit score, and other relevant variables.
You may read here for information on how the eligibility of the applicant is ascertained while giving a home or plot loan.
Eligibility of the Property: Lenders only approve plot loans, much like home loans, after carefully evaluating the property’s legal status, price, location, seller, kind of property, and other factors.
Plot Loan Vs Home Loan
Every financial institution follows a similar due diligence procedure, whether you’re applying for a home loan or a land/plot loan. Furthermore, the co-applicant policy and the EMI choices provided by the lenders are comparable for both loans. Despite their similarities, several differences exist:
• Property location and purpose: Land loans are restricted to plots, whereas home loans are accessible for ready-to-move-in and under-construction properties.
• Loan duration: Land loans have a maximum term of 15 years, but home loans can be taken out for up to 30 years.
• Tax benefits: The borrower may be eligible for tax breaks on principal and interest payments when taking out a house loan. Plot loans, however, do not come with any tax advantages.
Difference between Plot loan Vs Home loan
| Differences | Home Loan | Plot Loan |
| Purpose | Purchase of ready to move or under-constructed properties | Purchase of plot or land for residential use |
| Tax Benefits | Tax benefits applicable for interest and principal payments | Tax benefits can be availed only to recover the construction cost of a house on land |
| Tenure | Up to 30 years | Up to 15 years |
| Loan To Value | Between 75% and 90% | Between 75% and 80% |
Difference in LTV of Home Loan and Plot Loan
Most lenders pay between 70 and 80 per cent of the plot’s cost as specified in the selling agreement or the lender’s assessment of the plot’s market worth, whichever is lower. The Loan-To-Value (LTV) Ratio is another name for this. However, the LTV ratio for a standard house loan ranges from 75 to 90% of the LTV for most institutions.
To determine the plot’s market worth, many lenders use a third party to appraise the property objectively. With a standard home loan, this is extremely uncommon.
Furthermore, some lenders only loan a smaller sum or refuse to lend money for land parcels outside cities.
Please read this article for details on how the property’s eligibility is determined when granting a home or plot loan.
Interest Rates for a Plot Loan V/S Home Loan
Plot loans typically have higher interest rates from lenders than home loans.
The minimum interest rates that some of the largest Indian lenders are charging for plot loans and home loans as of January 2024 are listed below:
| Bank | Plot Loan Interest Rate | Home Loan Interest Rate |
| State Bank of India | 9.40% | 8.40% |
| ICICI Bank | 9.00% | 8.75% |
| HDFC Bank | 8.50% | 8.50% |
| PNB Housing Finance | 9.50% | 8.75% |
| DHFL or Piramal | 10.25% | 10.50% |
Tenure of a Plot Loan V/S Housing Loan:
Depending on the bank, home loans and plot loans might have maximum terms of 30 years.
For example, SBI allows plot loans with a maximum term of ten years. HDFC and LIC Home Finance Limited (LICHFL) offer plot loans with a full 15-year term. Plot loans are also available from lenders like DHFL and ICICI Home Finance for a maximum of 20 years. Plot loans from public sector banks like Union Bank of India and PNB Housing Finance (PNBHFL) have a maximum term of thirty years.
Furthermore, LIC Housing Finance provides a combined loan to finance the acquisition of a plot and the building of a house. This composite loan has a maximum term of 30 years.
Plot loans have the same term restrictions as home loans: either the maximum duration provided by the lender or the age of retirement, whichever comes first.
For details on the duration of a home loan, click this link.
Tax Benefits on a Plot/ Land Loan V/S a Home Loan
Unlike a Home Loan, there are no tax benefits applicable on a Plot Loan.
Nonetheless, there are several Income Tax Act parts that offer tax benefits on home loans taken out to build a house on that plot of land:
Interest-wise: The following details outline the maximum amount of Rs. 3.5 lacs that can be deducted from interest paid on a house loan:
1. Section 24B: A maximum of two lacs in deductions per fiscal year.
2. Section 80EE: If the loan is approved between April 1, 2016, and March 31, 2017, a deduction of up to Rs. 50,000 is permitted in a single fiscal year.
3. Section 80EEA: Maximum deduction of Rs. 1.5 lacs for house loans approved between April 1, 2019, and March 31, 2022, in a single fiscal year
Under Section 24B and Sections 80EE and 80EEA, an applicant may deduct the interest paid on a loan. The deduction is not allowable under both 80EE and 80EEA.
Principal: Under section 80C of the Income Tax Act, the principal amount repaid may be claimed as a deduction. Nonetheless, the 80C deduction cap is set at Rs. 1.5 lacs.
Some key points to consider while taking a Plot Loan
- Plot/Land Loans are only available for residential properties that will be developed into houses; they cannot be utilized for commercial or agricultural purposes.
- Within three to five years after the plot loan’s initial disbursement, construction on the house must begin on the plot obtained through a plot/land loan. Bank-to-bank variations exist throughout this period.
- A processing fee of one to two per cent of the loan amount requested is assessed by lenders.
Also Read: Site Plan Vs Building Plan Vs Floor Plan: Meanings and Differences
Similar Topics: Key Things to Remember Before Taking a Loan Against Property
