Home Loan Vs Plot Loan: Most people consider house purchase as their largest monetary choice. Anyone dreaming about owning property will probably require a loan to accomplish their goals which include apartments or villas or building their residential property. Your decision will center on obtaining financing as a Home Loan instead of a Plot Loan.
The following guide provides comprehensive information about Home Loans and Plot Loans by presenting their distinctive features alongside benefits and eligibility criteria and strategies to select the most suitable option.
What is a Home Loan?
Banks together with housing finance companies offer Home Loans to customers who desire buying or building residential properties. It covers:
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Ready-to-move-in houses
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Under-construction flats
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Apartments
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Independent houses
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Self-construction on owned land
The loan is repaid in EMIs (Equated Monthly Installments) over a fixed period, usually between 10 to 30 years.
What is a Plot Loan?
A Plot Loan, also known as a Land Loan, is a loan taken to buy a piece of residential land. This type of loan helps you purchase a plot where you can build your home in the future.
Plot loans are offered by banks but usually come with stricter rules compared to home loans.
Key Differences Between Home Loan and Plot Loan
| Feature | Home Loan | Plot Loan |
|---|---|---|
| Purpose | Buy or build a house | Buy a residential plot |
| Loan-to-Value (LTV) | Up to 90% of property value | Usually up to 70%-75% |
| Tax Benefits | Yes, under Section 80C and 24(b) | Only after construction begins |
| Availability | Available for all locations | Only for plots in municipal areas |
| Interest Rates | Lower interest rates | Slightly higher interest rates |
| Construction Requirement | No time-bound construction required | Must construct within 2-5 years |
Pros and Cons of Home Loan
Advantages:
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Higher LTV Ratio: Banks are willing to finance up to 90% of the property value.
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Tax Benefits: You can claim deductions under Section 80C (principal) and Section 24(b) (interest).
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Lower Interest Rates: Typically lower than plot loans.
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Wide Availability: Can be used for flats, villas, and houses under construction.
Disadvantages:
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Less Flexibility: You don’t get to design your home completely (especially with ready-to-move-in homes).
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Processing Time: Can be time-consuming due to verification and documentation.
Pros and Cons of Plot Loan
Advantages:
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Freedom of Design: You can build your dream home the way you want.
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Appreciation Potential: Land value often increases over time, especially in growing areas.
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Investment Opportunity: You can hold the land as an asset if you’re not ready to build immediately.
Disadvantages:
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No Immediate Tax Benefits: You only get tax benefits after you start construction.
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Lower LTV Ratio: You’ll need to arrange more funds as banks don’t finance the entire cost.
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Location Restrictions: Not available for plots in rural or agricultural zones.
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Time Limit for Construction: Some lenders require construction within a certain time frame.
Tax Benefits Comparison
| Tax Benefit Type | Home Loan | Plot Loan (After Construction) |
|---|---|---|
| Principal Repayment | Up to ₹1.5 lakh under 80C | Only after converting to home loan |
| Interest Payment | Up to ₹2 lakh under 24(b) | After construction is completed |
Note: If you buy a plot but don’t construct a house, you won’t get any tax deductions.
Interest Rates Comparison (2024 Average Rates)
| Loan Type | Interest Rate Range |
|---|---|
| Home Loan | 8.25% – 9.50% per annum |
| Plot Loan | 8.75% – 10.25% per annum |
Interest rates may vary depending on your credit score, income, and lender policies.
Example Scenario
Let’s say you want to buy a ₹50 lakh property.
Option 1: Home Loan
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Loan Approved: ₹45 lakh (90%)
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Tax Benefits: Yes (Immediately)
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EMI for 20 years: ₹38,000 (approx.)
Option 2: Plot Loan
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Loan Approved: ₹35 lakh (70%)
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Tax Benefits: None until you build
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EMI for 20 years: ₹32,000 (approx.)
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Construction must begin in 2–5 years
So, while the EMI may be slightly lower for a plot loan, you have to invest more initially and won’t enjoy immediate tax savings.
Which Loan is Best for You?
Choose a Home Loan if:
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You want to move in quickly or buy a ready home.
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You’re looking for immediate tax benefits.
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You have a limited budget and want a higher loan amount.
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You prefer less hassle and more availability.
Choose a Plot Loan if:
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You want to build your own custom-designed home.
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You already have funds for construction.
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You see land as a long-term investment.
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You are okay with delayed tax benefits.
Final Thoughts
Both Home Loans and Plot Loans serve different purposes. A Home Loan should be your selection if you want to purchase property and need the tax advantages from day one. Those who aim to develop their own home into the future may maximize their savings through a Plot Loan despite waiting for tax benefits.
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Borrowers must examine loan interest rates together with processing fees and EMI plans and construction terms from various banks or financial institutions before making their application.
The correct decision will lead to substantial savings reaching in the lakhs range.
Frequently Asked Questions (FAQs)
1. Is there any possibility to transform my Plot Loan into a Home Loan?
The banks permit loan converts from plot to home while you construct on the land to obtain tax benefits.
2. The Indian tax code provides no recognition for tax deductions on plot loans.
Not directly. Tax deductions under these conditions become available after construction has both started and finishes.
3. Banks may provide up to 70% to 75% of the plot purchase payment.
Financial institutions usually provide a value of 70%–75% of property worth when customers purchase plots.
4. The penalty conditions apply when plot loan borrowers fail to construct a house before the specified time framework.
Braj Verma is a resident of Rajgarh in Madhya Pradesh and is a content writer and freelancer by profession. He has a degree in Political Science from Barkatullah University, Bhopal. He has expertise in subjects like credit cards, banking, loan, insurance, political analysis and digital marketing.