Buying a house is one thing but purchasing a plot of land and building a house (or any other thing) is quite different, especially when it comes to financing. While Home Loans cater to the former, Land or Plot Loans serve the purpose of buying a plot. In common usage, many people get confused and consider both as Home Loans. To bring clarity, we have simplified the Home Loan vs Plot Loan by highlighting the differences between both.
What is a Plot Loan?
Plot Loans, also commonly called Land Loans, are granted by financial institutions to allow you to buy a plot for constructing a residential property. They are just meant to finance the plot's purchase cost and not for construction. Individuals who plan to invest in land for future construction or development often opt for Plot Loans.
Plot Loans can also be availed of to buy industrial plots used for commercial purposes. They are commonly known as commercial plot loans or industrial plot loans.
Are Plot Loans similar to Home Loans?
While Plot Loans and Home Loans are secured loans, they are both entirely different from each other. Plot Loans are meant to finance the plot cost and do not provide funds for the associated construction, whereas Home Loans are granted to finance the purchase cost of homes. However, the due diligence process in the case of Home Loans and Plot Loans is quite similar. After the loan application, the lender scrutinises your application, conducts physical verification, and decides on the approval or rejection thereof.
Difference between Plot Loan and Home Loan
Below is the detailed difference between a Home Loan and Plot Loan:
1) Location of property
You can avail of a home loan to buy the home at any location of your preference. Whereas Plot Loans for residential plots are granted for plots located within the municipality or corporation limits. The plots shouldn’t be located in an agricultural or industrial area otherwise, you may have to apply for a loan for industrial or agricultural land.
2) Tax benefits
Another significant difference between Home Loan and Plot Loan is the tax benefits. The principal and interest payments on Home Loans are eligible for deduction under the provisions of the Income Tax Act, 1961. However, no such specific deduction is available for Plot Loans under the income tax law.
3) Purpose
The purpose of Home Loans is to enable you to borrow money to buy a new residential house, an under-construction house, or to build your own home. Plot Loans are granted to allow you to buy a piece of land, depending on the type of plot you wish to buy.
4) Interest rate
Home Loan interest rates are quite affordable. The interest rates on Plot Loans are higher as compared to Home Loans, as it is difficult to determine the true value of the plot.
5) Eligibility criteria
Home Loans have simpler eligibility criteria as compared to Plot Loans. Any person with a stable income, aged between 21-65 years and a good credit score can apply for Home Loans in India. However, Plot Loans are granted only after careful verification and obtaining surety that the plot will be used for the intended purpose, most commonly constructing the house.
Also Read: 4 tips to manage your Home Loan EMIs better
In a Nutshell
Home Loans and Plot Loans should not be confused with each other. While the latter only finances your plot purchase, the former assists you in buying your house. Further, there is a significant difference in the terms and conditions, tenure, interest rates, and eligibility criteria between these two loans. The tax benefits on home loans further act as catalysts and are one of the prime reasons for the rising demand for Home Loans. However, in any case, you need to find the right lender.
Axis Bank has always been a preferred lender for property-related loans like Home Loan or Land Loan. With affordable interest rates, flexible tenure and quick processing, Home Loans from Axis Bank are a go-to option to fulfil your dream of buying your own house. Axis Bank provides you with the option to go for smaller EMIs by choosing longer tenures up to 30 years. Further, there are no prepayment charges. You can choose between floating and fixed interest rates as per your preferences. If you are willing to just purchase the plot and construct your home later, then you can also get your plot purchase financed with Axis Bank.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
