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A plot loan is a type of mortgage. You can typically use the funds to purchase a piece of land in your dream location for constructing a home. Unlike home loans, which cover land acquisition and house construction within a specific timeframe, a plot loan is solely designed to purchase land. Thus, you can build your home whenever you are ready without being constrained by a fixed timeframe. However, before deciding on whichever option you find appealing, it is prudent to be well aware of both plot loans and home loans. So that you can choose the one that perfectly aligns with your preferences and needs. Hence, Urban Money presents details such as typical plot loan interest rates, benefits, types, eligibility criteria, required documents, applicable fees, and more.
Here are some of the major benefits you can expect by availing a home loan for plot purchase only:
The typical eligibility criteria for a home loan for plot purchase are as follows:
In addition to the plot loan interest rate, there are certain fees and charges you should be aware of before initiating your application. These primarily include the processing fee, prepayment fees, and late payment fees. Thus, hereunder, we outline the applicable fees for a plot purchase loan from leading lenders in India.
| Bank | Processing Fee | Prepayment Charges | Late Payment Charges |
| SBI | 0.35% of the loan amount | Nil | 2% p.a. (in addition to the applicable interest rate) on the overdue amount |
| HDFC | Up to 0.50% of the loan amount or Rs. 3000/- whichever is higher | 2% of the outstanding amount | Up to 18% p.a. on overdue instalment amounts |
| Axis | 1% of the loan amount + Rs. 5,000 login fee | 3% of the outstanding amount | Up to 24% p.a. on overdue instalment amounts |
| Canara | Up to 0.50% of the loan amount | 2% of the outstanding amount | Up to 24% p.a. on overdue instalment amounts |
| Union Bank of India | Up to 0.50% of the loan amount | 2% of the outstanding amount | Up to 18% p.a. on overdue instalment amounts |
| Bank of Baroda | 0.50% of the loan amount, subject to a minimum of Rs. 8,500 and a maximum of Rs. 25,000. | Nil | Up to 24% p.a. on overdue instalment amounts |
| PNB | 1% of the loan amount | 2% of the outstanding amount | Up to 24% p.a. on overdue instalment amounts |
| ICICI | 1% of the loan amount or Rs. 11,000/- whichever is higher | 2% of the outstanding amount | Up to 24% p.a. on overdue instalment amounts |
| Federal Bank | Up to 0.50% of the loan amount | Nil | Up to 24% p.a. on overdue instalment amounts |
| Maharashtra Bank | 0.25% of the loan amount or Rs. 25,000/- whichever is higher | 2% of the outstanding amount | NA |
| Karnataka Bank | 0.25% of the loan amount | 2% of the outstanding amount | Up to 24% p.a. on overdue instalment amounts |
The following documents are required for a plot loan:
Apply Home Loan For Different Property Types
Let’s look at the prevailing plot loan interest rates from various banks across India.
| Bank | Interest Rates (p.a) |
| SBI | 9.40% onwards |
| HDFC | 8.50% onwards |
| Axis | 8.70% onwards |
| Canara | 9.25% onwards |
| Union Bank of India | 8.40% onwards |
| Bank of Baroda | 8.40% onwards |
| PNB | 9.50% onwards |
| ICICI | 7.85% onwards |
| Federal Bank | 9.05% onwards |
| Karnataka Bank | 9.12% onwards |
| Maharashtra Bank | 8.50% onwards |
Plot purchase loans come in various types to cater to different needs. Understanding these types can help you choose the one that perfectly aligns with your requirements. Let’s scroll down and learn about different types of plot loans:
Raw land refers to purely undeveloped plots. I.e., lands without utilities or amenities like sewers, roads, or electricity. Securing raw land loans might be difficult as lenders consider it as risky. Consequently, you may encounter unfavourable terms, including high interest rates, a lower loan-to-value ratio (LTV), and a shorter repayment period, among other factors.
Unimproved land refers to land with some basic utilities and amenities but not enough to support home construction. For example, the land may have water access but not electricity or roads. This type of loan is slightly easier and cheaper to obtain than a raw land loan but still more challenging and costly than an improved land loan.
It is a type of plot purchase loan for owning land with adequate utilities and amenities to support a building/home. This type of land may have access to water, electricity, roads, sewer systems, and other pertinence that are inevitable for residential properties. Moreover, improved land loans are generally more cost-effective and less challenging to obtain, as lenders typically perceive them as less risky. Thus, the borrower can enjoy a lower interest rate, higher loan-to-value ratio (LTV), and longer repayment periods than other types of land loans.
The following table summarises the key differences between home loans and land loans:
| Aspect | Home Loan | Land Loan |
| Purpose | For both purchasing land and constructing a home on it within a specific time frame. | For solely purchasing land but having the freedom to build a house on it in the future. |
| Tax benefits | Home loans offer tax benefits on both the principal and interest payments under Section 80C and Section 24 of the Income Tax Act, respectively. | Land loans offer no tax benefits unless the borrower constructs a house on the purchased plot within a specified period. |
| Tenure | Maximum loan tenure is typically up to 30 years. | Maximum loan tenure is typically up to 15 years. |
| Loan to Value Ratio (LTV) | Home loans provide a higher LTV of up to 90% of the property value. | Land loans provide a lower LTV of up to 80% of the plot value. |
The tax benefits on plot loans depend on what you intend to do with the plot. Namely, you can only be eligible for these benefits if you construct a house on the plot that you bought with the loan amount. However, eligible candidates can enjoy a tax deduction of up to Rs. 1.5 lakh per year on the principal repayment under Section 80C. And up to Rs. 2 lakh annually on the interest payment under Section 24. These deductions are subject to certain conditions and limits, such as property ownership, loan purpose, loan date, etc.
Consider the following tips to ensure a smooth and successful application process regarding a home loan for plot purchase: