What is the difference between plot loans and home loans?

For most Indians, owning a house is a dream. However, buying a house usually requires financial assistance in the form of a home loan from financial institutions such as banks and Housing Finance Companies (HFC). This is especially true for people living in metro cities and urban areas. They mostly purchase a readymade multi-storied apartment or an individual bungalow/villa developed by a builder. In addition, a home loan is also available for constructing a house on a plot as per one’s liking. Some lenders also offer a composite plot loan for purchasing a plot and funding the construction of a house on it.

See also: Factors that affect home loan tenure

 

What is a plot loan? 

Plot Loan is a type of housing loan that you can get from financial institutions. It’s used for buying a plot or land on which you plan to build a house. You can buy such plots from an individual or a private developer, or through direct allotment from government authorities such as Delhi Development Authority (DDA), City and Industrial Development Corporation (CIDCO), Jaipur Development Authority (JDA), Maharashtra Housing and Area Development Authority (MHADA) and Bangalore Development Authority (BDA), etc.

This type of loan can be used to buy a residential plot or land instead of a readymade housing unit. It is similar to a regular home loan. Lenders assess the eligibility of the applicant and the property in detail, just like in the case of a home loan.

 

Plot loan vs. home loan: Eligibility

When lenders consider granting a plot loan, they take into account the applicant’s eligibility, which is determined based on their ability to repay. This is measured by looking at their income, stability of income, credit score and other relevant factors. The eligibility criteria for a plot loan is similar to that of a home loan.

Before approving plot loans, lenders assess the property thoroughly. This involves evaluating its legal status, pricing, location, seller, property type and other parameters, just like they do for home loans.

 

Plot loan vs. home loan: Differences

Purpose and property type

Plot loans are for purchasing or constructing on vacant lands, whereas home loans are for buying or building residential properties.

Tax benefits

1. Home loans offer tax benefits, which are not available with plot loans unless construction is undertaken on the plot.
2. Tax benefits on home loan taken for construction of a house on that plot can be availed under various sections of the Income Tax Act.
3. Interest paid on a home loan is eligible for a maximum deduction of Rs. 3.5 lacs under different sections of the Income Tax Act.
4. Section 24B allows a maximum deduction of Rs. 2 lacs in one financial year.
5. Section 80EE allows a deduction of up to Rs. 50,000 in one financial year for a loan sanctioned between 1st April 2016 and 31st March 2017.
6. Section 80 EEA allows a maximum deduction of Rs. 1.5 lacs in one financial year for home loans sanctioned between 1st April 2019 and 31st March 2022.
7. An applicant can claim deduction against the loan interest paid under Section 24B and either of Section 80EE or Section 80EEA. Deduction can’t be claimed under 80EE and 80EEA both.
8. The principal amount repaid on a home loan can be claimed for deduction under section 80C of the Income Tax Act, subject to a limit of Rs. 1.5 lacs.

Interest rates

Lenders in India usually charge a higher interest rate for plot loans compared to home loans. Here are the minimum interest rates charged by some major lenders as of January 2024: 

1. State Bank of India: 9.40% for plot loans, 8.40% for home loans
2. ICICI Bank: 9.00% for plot loans, 8.75% for home loans
3. HDFC Bank: 8.50% for both plot loans and home loans
4. PNB Housing Finance: 9.50% for plot loans, 8.75% for home loans
5. DHFL or Piramal: 10.25% for plot loans, 10.50% for home loans.

Tenure

1. Home loans have lower interest rates and longer repayment tenures than plot loans.
2. Both home loans and plot loans can be availed for a maximum tenure of 30 years, depending on the bank.
3. SBI offers a maximum tenure of 10 years for plot loans, while HDFC and LIC HFL provide plot loans for a maximum 15-year tenure.
4. ICICI Home Finance and DHFL offer plot loans for up to 20 years.
5. Public sector banks like Union Bank of India and PNBHFL have a maximum tenure of 30 years for plot loans.
6. LIC Housing Finance offers a composite loan for purchasing a plot and building a house on it with a maximum tenure of 30 years.
7. The tenure of a plot loan is limited to the age of retirement or the maximum tenure offered by the lender, whichever is earlier.

 

FAQs

What is the main difference between a plot loan and a home loan?

A plot loan is specifically for purchasing a plot of land for future construction, while a home loan is for buying or constructing a residential property, like an apartment, house, or bungalow.

Can I get tax benefits on a plot loan?

No, tax benefits are not available on plot loans unless you undertake construction on the plot. Once you start construction, you may be eligible for tax benefits similar to those available on a home loan.

What are the typical interest rates for plot loans compared to home loans?

Interest rates for plot loans are generally higher than for home loans. For example, as of January 2024, State Bank of India offers 9.40% for plot loans and 8.40% for home loans.

What is the maximum tenure for a plot loan?

The maximum tenure for a plot loan varies by lender, but it is generally shorter than for home loans. For instance, SBI offers a maximum tenure of 10 years for plot loans.

Are there any specific eligibility criteria for plot loans?

The eligibility criteria for plot loans are similar to those for home loans, focusing on the applicant's income, stability of income, credit score and other relevant factors. The property’s legal status, pricing and location are also thoroughly assessed.

Can I avail of a loan for both purchasing a plot and constructing a house on it?

Yes, some lenders offer composite loans that cover both the purchase of a plot and the construction of a house on it. For instance, the composite loan from LIC Housing Finance with a tenure of up to 30 years.

Is it easier to get approval for a home loan or a plot loan?

The approval process for both loans involves similar assessments of the applicant's financial standing and the property in question. However, plot loans may have more stringent evaluations regarding the property’s location, type and legal status.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com