Difference Between Home Loan vs Land Loan?

All loans have a simple purpose - to fuel and support the aspirations of borrowers. In India, loans are as diverse as the demography they cater to.

Two such loans are home or housing loan and plot or land loan. This article discusses the top-5 differences between home loans and plot loans and shows you the right way to use a calculator to determine your eligibility.

Difference in Nomenclature

The first and the foremost difference between a home loan and a plot loan is in its nomenclature.

You may use a home loan to buy a fully constructed or yet to be constructed house on freehold land or a residential complex.

You may avail of a plot loan to buy a piece of land on which you can construct your house or simply as a medium of investment.

1. Difference in Purpose

Although both the loans deal with housing, the purposes are different.

A home loan allows you to buy a constructed house or invest in a property that is under construction. Some borrowers use it to book a flat in an apartment complex that is yet to begin construction.

A plot loan, on the other hand, allows you to invest in land to construct a house. Many borrowers use it to buy land but do not construct a house on it. They invest in land to take advantage of the appreciation in land valuation over time.

1. The Difference in Loan to Value

The loan to value ratio, or the amount of the property value you are eligible to get as a loan, varies with a home loan and plot loan.

Generally, for a plot loan, reputed lenders lend between 75% and 90% of the land's market value for land value of up to 20 lacs.

For a home loan, this amount may go up to 90% if the property value is below 30 lacs.

In addition to property value, the loan amount and interest rate also depend on multiple other factors, like credit score, location of the property, income status, and repayment tenure.

Check a home or plot loan eligibility calculator to understand the loan amount that you are eligible to claim.

1. Difference in Tenure

Some lenders allow a longer repayment period of up to 30 years for home loans but a shorter duration of up to 20 years for plot loans.

However, there are a few Indian lenders who provide the same 30-year repayment bracket for both home and plot loans.

1. The Difference in Tax Benefits

By availing a home loan, you can claim tax deductions for the EMIs you pay, along with separate deductions for principal repayment. However, a plot loan doesn't offer such benefits.

To avoid losing on the tax benefits, the majority of plot loan borrowers construct houses on the plot of land, which makes the construction cost eligible for tax deductions.

Conclusion

Going by the differences discussed so far, it is easy to understand how plot loan offer more benefits than home loans. After all, the land is an asset; if you have land, you are at liberty to use it for any purpose you wish to. But the same cannot be held for a home loan.

Yourmeds is one of the most trusted online pharmacies, which allows you to buy medicine online from wide variety of medical assortment available.