Investing in Property? Learn About the Difference Between Plot Loans and Home Loans

By LODHA

Most of us grow up dreaming of the day we'll move into a home that reflects our personalities and carries our name. As an adult, you're probably saving up to buy either your first home or a dream house. Regardless of where you're at in your real estate journey, you might find buying the perfect home to be a capital-intensive affair. However, instead of putting off the purchase, you can seek financial assistance from leading banks and institutions in the form of loans. Today, you can find a loan to finance almost anything under the sun. When it comes to real estate, home loans and plot loans are not only the most popular, but they're also most often used interchangeably. For prospective homebuyers, grasping the distinctions between these two loan types is paramount, as each serves a unique purpose and presents its own array of factors and advantages.

Deciphering Types of Loans: What You Need to Know

a) Home Loans 

If you're planning on purchasing a home, you might want to seek out financial assistance to help you buy the house of your dreams. One of the best ways to lighten the financial burden of buying a house is to apply for a home loan. A home/house loan means you can borrow an amount of money for a specific period to purchase ready-for-sale and under-construction properties. You do have to pay interest on the borrowed sum as per the rate set by the bank or financial institution you're approaching for the loan. If you want to apply and get approved for a home loan, you must provide collateral. Usually, the home you're about to purchase is the security the lender is looking for. In case you fail to pay the borrowed amount, the lender can seize your property and recover the funds by selling it.

b) Plot Loans

Chances are, you might want to purchase land instead of a ready-to-move or under-construction home. Whether you're looking for a blank canvas or want plenty of space, purchasing land can be an expensive affair. Thankfully, you can apply for a plot loan/land loan to help you shoulder the cost of buying a sizeable chunk of land. As the name suggests, a plot loan allows you to approach a lender if you need financial assistance while investing in land on which you can construct a house or a building.

Home Loans and Plot Loans: Understanding the Contrast

The eligibility criteria, interest rates, application process and repayment via  Equated Monthly Instalments (EMI) for both home loans and plot loans are generally similar, although they may vary depending on the bank or NBFC you apply to. Your credit score also significantly influences the home loan or plot loan application process.

Comprehending the purpose and characteristics of both these loans can assist you in determining which option aligns best with your needs, whether it's for a ready-to-move-in residential unit or one to be constructed later according to your specifications. 

- Property Location: You can get a home loan to buy property at any location of your choice, but the plot loan should be located within the limits of the municipality or corporation and shouldn't be in the industrial or village area.

- Purpose: A plot loan is a land purchase loan. If you want to purchase a land on which you plan to build a house or building, you can apply for a plot loan. However, you can only apply for a home loan if you want to buy a ready-to-move or under-construction house.

- Tax Benefits:  The applicants can get tax benefits on both the interest and principal payments of the home loan, however, there are no tax benefits available to plot loan applicants. The only possible benefit is for the amount borrowed to build on it.

By understanding the differences between these loan options and evaluating your investment objectives, you can make informed decisions that align with your long-term financial goals. Whether you're envisioning a sprawling estate or a cozy family home, the right loan can pave the way for your real estate aspirations to flourish. Moreover, at Lodha, we are committed to providing comprehensive support for home loan acquisition to assist in real estate investments. Partnering with a vast network of over 15 banks, our team delivers streamlined and customer-centric home loan solutions. We prioritize suggesting the most suitable bank for each customer, tailored to their individual profile, thus enhancing the overall convenience of the home loan process.