Buying land is a big investment that offers a solid addition to one’s portfolio. However, sometimes a plot loan is required to finance such a purchase. A plot loan is intended exclusively for people who want to purchase land. Whether someone wants to invest in land or plans to build a home in the future, this kind of financing is necessary.
Understanding everything about plot loans, including the best lenders offering them, can help make an informed decision. Read the blog to get an overview of plot loans in India. By the end of this blog guide, you will have a thorough understanding of the plot loan, empowering you to secure the best possible financing for your plot purchase.
What is a Plot Loan ?
Plot Loan is a financial product that caters to the funds needed by individuals for purchasing a plot or vacant land. Also known as a land loan, a plot loan is specifically designed for land buying for housing or commercial purposes. If your objective is to build a house, banks will sanction a home loan for that. In general, the plot loan interest rate is higher and doesn’t necessarily ask you to construct something on it. You can take a plot loan and buy a piece of land and keep it as an investment without any issue.
How Plot Loan is Different from Home Loan?
A plot loan is different from home loans in India for many reasons. Many people confuse one with another or with a loan against property because they all fall in the same financial product group – housing finance loans. Some of the big differences between plot loans and home loans are as follows:
Differences Between Plot Loan and Home Loan
| Attributes | Plot Loan | Home Loan |
|---|---|---|
| Purpose of Loan | To purchase a residential plot or land. | To buy, construct or reconstruct a residential property. |
| Type of Property | Non-agricultural land or vacant residential plot. | Flat, apartment, bungalow, villa or ready-to-move home. |
| Construction Requirement | Generally not mandatory. Some lenders may require construction within 2–3 years. | Some lenders may require construction to begin within 6–12 months. |
| Loan-to-Value (LTV) Ratio | 70–75% | 80–90% |
| Interest Rate | Generally higher than a home loan. | Typically around 8%–15% (depends on lender and borrower profile). |
| Maximum Loan Tenure | Up to 30 years. | Up to 30 years. |
| Tax Benefits | No tax benefits available. | Eligible for tax deduction up to ₹2 lakh under Section 24(b)* |
*Tax benefits are subject to applicable provisions of the Income Tax Act and lender eligibility.
Suggested read: Plot Loan vs Home Loan
What Type of Lenders Offer Plot Loans in India?
Several types of lenders in India offer plot loans, each catering to different borrower needs. Here’s a detailed look at the options:
1. Public Sector Banks
Public sector banks are government-owned financial institutions that offer plot loans with regulated interest rates and a strong emphasis on documentation and compliance. While the approval process may be slightly longer, these banks are trusted for their transparency and customer service.
Best for: Salaried individuals and first-time buyers seeking reliable terms.
2. Private Sector Banks
Private banks are known for quicker loan processing, more digital touchpoints, and a variety of plot loan products. They often provide personalized services and flexible eligibility criteria. While interest rates might be slightly higher than public banks, the faster turnaround can be worth it.
Best for: Professionals, entrepreneurs, and tech-savvy borrowers looking for faster approvals and customer-friendly interfaces.
3. Housing Finance Companies (HFCs)
HFCs specialize in housing-related finance, including plot and construction loans. They are regulated by the National Housing Bank (NHB) and often cater to borrowers who may not meet traditional banking criteria, such as self-employed individuals or those without regular income documentation.
Best for: Individuals seeking flexible documentation norms or planning to build a house on the plot soon.
4. Non-Banking Financial Companies (NBFCs)
NBFCs offer plot loans with minimal paperwork, faster processing, and slightly relaxed eligibility criteria. While their interest rates may be marginally higher, they’re preferred by borrowers who face challenges getting loans from traditional banks.
Best for: Self-employed, freelancers, and those looking for quick funding with minimal documentation.
Which Bank/Lender is Best for Plot Loan?
As the demand for plots and plot loans is at an all-time high, many questions like “which bank is best for plot loan” arise. To understand which bank is best for a plot loan, you have to answer some of the following questions:
- What is the home loan amount you want?
- How much tenure period are you looking for?
- Does your CIBIL score meet the lender’s eligibility criteria?
- What are the processing fees for the plot loan you want to apply for?
Once you answer it correctly, the answer to “which bank is best for plot loan” arrives. Regardless, the bank’s plot loan interest rate is slightly better compared to the counterpart of NBFC/HFL. In the table mentioned below, we have compared the best bank for plot loan in India and also their NBFC HFC equivalents.
| Banks / NBFCs | Minimum CIBIL Score | Maximum Loan Tenure | Interest Rate | Processing Fee |
|---|---|---|---|---|
| State Bank of India (SBI) | 700 or above (750+ preferred) | Up to 15 Years | 7.25% onwards | 0.35% (Min. ₹2,000 – Max. ₹10,000) |
| ICICI Bank | 700 or above | Up to 15 Years | 8.50% onwards | 0.50% |
| HDFC Bank | 700 or above | Up to 15 Years | 7.75% onwards | 0.50% (Maximum ₹3,000) |
| Union Bank of India (UBI) | 600 or above (700+ preferred) | Up to 10 Years | 8.60% onwards | 0.50% (Maximum ₹15,000) |
| Axis Bank | 650 or above | Up to 15 Years | 8.00% onwards | Up to 1.00% |
| LIC Housing Finance | 700 or above | Up to 15 Years | 8.65% onwards | 0.50% |
Disclaimer: Interest rates, minimum CIBIL score requirements, loan tenure, and processing fees are subject to change as per RBI guidelines and individual lender policies. Please contact BASIC Home Loan for the latest offers and eligibility criteria.
Tax Benefits on Plot Loans in India
Tax benefits on plot loans are more limited compared to home loans, but understanding them can still lead to significant savings. Here are the key tax benefits associated with plot loans in India:
- Interest Payment Deduction: Tax benefits on interest payments can be claimed if the plot is used for constructing a house. The deduction is available under Section 24(b) of the Income Tax Act after the construction is complete. This means that you can claim a deduction on the interest paid during the pre-construction period in five equal installments after the completion of the construction.
- No Deduction on Principal Repayment: Unlike home loans, there is no tax deduction available for the principal repayment of a plot loan. This is an important consideration when deciding between a plot loan and a home loan.
- Construction Period Deduction: If you construct a house on the plot within five years of purchasing it, the interest paid during the construction period can be claimed in five equal installments after the completion of the construction. This benefit can significantly reduce your taxable income, providing substantial savings.
These benefits make it financially prudent to consider constructing a home on the plot within the stipulated period to avail of the tax advantages. It is also important to keep proper records of all interest payments and construction-related expenses to ensure the smooth processing of tax benefits.
Common Eligibility Criteria for Plot Loan
Plot loan in India is one of the most sought-after financial services in India. That’s why RBI makes separate rules and regulations for banks and NBFCs to lend loans to borrowers. If you’re someone who’s looking to arrange funds for a plot loan, you must meet all these common eligibility criteria for a plot loan mentioned below –
- The borrower must be a salaried person or a self-employed individual with a trade license or GST certificate.
- Only Indian citizens are eligible to apply for plot loans in India.
- He/she/they must have good employment and loan repayment history to be eligible for plot loans. Most banks and NBFCs only offer plot loans to applicants with a credit score of 700 or above.
- One can only apply for a plot loan in India if they are borrowing for the purpose of buying vacant land or a residential plot.
Personal Documents
- Identity ProofAadhaar Card, PAN Card, Passport, Voter ID or Driving Licence.
- Address ProofElectricity Bill, Ration Card, Passport, Rent Agreement or Rent Receipts.
Financial Documents
- For Salaried IndividualsLast 3 months’ salary slips and latest bank statements.
- For Self-Employed / Non-Salaried IndividualsLast 3 years’ Income Tax Returns (ITR), Form 16 (if applicable), and latest bank statements.
Property Documents
| Document Type | Documents Required |
|---|---|
| Ownership Proof | Sale Deed / Mother Deed |
| Legal Verification | Encumbrance Certificate |
| Layout Approval | Approved Layout Plan / Approval Order |
| Property Tax Records | Khata Extract & Latest Property Tax Receipts |
| No Dues Certificate | No Tax Due Certificate |
| Transaction Proof | Payment Receipts |
