Pros And Cons Of Plot Loans

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Plot loan or land loans are the loans that are acquired specifically for the purchase of piece of residential or commercial land. These are different from home loans as in home loans are obtained for acquisition for a constructed property, under construction property or for a land which is likely to go under construction soon.

Risk Factor with Plot Loans:
There is always a risk factor associated with plot loans both for the borrower and the lender. The borrowers should properly check the documents of the plot as there is no scarce of cases where buyers are fooled by forge documents and ownership rights.

For the lenders, the risk factor is associated with the loan default. If the loan is defaulted then lender cannot sell or use the land immediately.
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It means you have to pay a significant amount of money in the4 form of tax for the land. On the contrary, home loans are eligible for tax deductions. Such deductions are applicable on payment of both principal and interest. Plot buyers can only avail tax benefits if they are constructing on the plot under a home loan. Though the tax deductions will only be applicable on the loan amount after the completion of the project.

• Loan to Value (LTV): The LTV or simply said the amount of loan with respect to the value of the property is also different in home loans and plot loans. On home loans the loan is value usually remains 80%-85% and even 90% is some cases whereas with plot loans, you can avail LTV up to 70% at best. It makes borrowers to take out as much as 30% money from their pocket. It is advisable that the borrowers should pay as much amount in form of down payment so that loan amount can be reduced. It allows them to save a significant amount of money in the form of interest.

• NRIs: Non-Resident Indians are a major portion of property buyers in the country but not for the raw land purchase. Most banks do not offer plot loans to NRIs and even if they offer such loan, they charge high interest. On the other hand, NRIs can easily purchase a property through a home loan and even on reasonable interest
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It pushes borrowers to perform extensive research in choosing their lender. Banks such as Punjab National Bank and Indian Bank have a upper limit of Rs. 50 lakh and Rs. 1 crore respectively. However, the disbursement amount also depends on the value of the property and eligibility of the borrower. Here, one thing should be noticed that the loan amount disbursed for construction also includes the cost of raw materials and labour.

• Tenure: This is one factor which creates a great discrimination between home loans and plot loans. On plot loans, the maximum tenure can go up 15 years whereas on home loans it can go up to a period of 30 years. The fact of the matter is that the tenure of plot loans is generally lower than the home loans.

• Construction on the Plot: This is another area where preconditions are applied from the banks only on plot loan. Such preconditions include starting the construction within a stipulated time period. For instance, State Bank of India offers plot loan sunder the SBI Realty Loan scheme in which the owner has to start the construction within 2 years from the date of allotment. If we take another example of ICICI bank, their policy states that the construction has to be completed within 2 years from the date of getting first disbursement of the

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