Buying a plot of land is an investment for the future. Whether you want to build your dream house or utilize the land for commercial purposes, a plot loan will help you secure the required amount of money. A plot loan is different from other home loans because it is specifically designed for buying vacant land. In this blog, we will be discussing the key features of a plot loan, its benefits, and how it differs from a commercial property loan.
What is a Plot Loan?
A plot loan can be used for residential, commercial, or agricultural plots. The plot being purchased becomes a collateral for the loan. In case the borrower fails to pay, the security for the lender is in place. Usually, it covers up to 70-80% of the market value of the land, and the rest becomes the borrower’s liability.
Why Opt for a Plot Loan?
- Affordable Financing Option
One of the primary advantages of a plot loan is its relatively low interest rate, compared to that of unsecured loans. Since it is a land-backed loan, lenders give favorable interest rates, thus making the loan affordable for most borrowers. - Longer Repayment Period
Plot loans typically have flexible repayments which fall between 5 to 15 years. This allows a borrower to have more time to pay off the loan in smaller portions. - Higher Loan Amount
Most financial houses allow individuals to access more amount to purchase plots. This reduces the pressure of using all personal savings in land investments. - No Need for Immediate Construction
Unlike home loans, plot loans do not have a compulsion to start construction immediately. The borrower can hold on to the land for years before starting any development, thus offering flexibility in how the land is used.
Key Eligibility Criteria for a Plot Loan
The following are the eligibility criteria that need to be met to qualify for a plot loan:
- Age and Income
Most financiers require that applicants be between 21 to 65 years. Also, your income will be reviewed to confirm one can comfortably repay the loan. - Credit Score
Credit score above 750 shall increase your ability to acquire the loan, and even working terms might be offered in your favor. - Land Documentation
Lenders demand clear documentation on the plot you intend to purchase. The land should have a clean title, be dispute-free, and should not be located in restricted zones.
Difference Between Plot Loan and Commercial Property Loan
Although plot loans and commercial property loans are both meant for the financing of real estate, they serve different purposes:
- Purpose of Loan
A plot loan is taken to buy an empty land, which may be a residential plot or an agricultural plot. In contrast, a commercial property loan is specifically meant for purchasing land or property, which will be used as business premises, like offices, shops, or even industrial space. - Loan Terms
Commercial property loans usually have more stringent eligibility requirements than plot loans. Moreover, the interest rates associated with such loans may also be higher because of the risk factor associated with commercial property. - Collateral
In a plot loan, the land itself becomes the collateral. However, in a commercial property loan, the commercial property becomes the collateral, and the amount of loan granted usually depends on the amount of income the property may generate and the potential for the business.
Conclusion
A plot loan is the best choice for those seeking to buy land, whether it is for personal use or as an investment. Attractive interest rates, flexible repayment terms, and a greater loan amount make it an effective way to meet the needs of land buyers. It’s just important to understand what the eligibility criteria are and ensure that the plot purchased meets all legal standards.
A commercial property loan is specifically best for investment in any form of property for a business. Though the two loan terms are different, it can be a source for easy financial flexibility to aid your real estate dreams. When you are looking at land purchase for residential and commercial purposes, a plot loan can make your visions possible, thus paving for growth and future opportunities in it.
