Mar 28, 2024Homes and People

Composite Loan vs Plot Loan

by Godrej Properties Limited

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We save our hard-earned income for many years to invest in a real estate property be it a house or a parcel of land that will yield us high returns on investment. To accomplish this dream, we either opt for a plot loan, pay it back to the authorities and then construct our dream house on the land. Some people take a composite loan that allows them to realise their dream of owning a home much sooner. 

Let us discuss the difference between plot loan and composite loan in detail: 

What is a Composite Loan? 

A Composite Home Loan means when you buy a parcel of land and build your dream home on it within a given time frame. To put it in simple words, it is when you combine both a land loan and a construction loan. 

When you intend to start the construction of your home immediately after buying a piece of land, then you must opt for a composite loan. If you are planning to buy the land at the present moment and start the construction of the house after a few years, then a composite loan is not the best option for you as it requires you to complete the construction of the house within a specified time frame after opting for the loan.

What is a Plot Loan? 

A land loan means you take a loan to purchase a plot on which you can construct your dream home or purchase a non-agriculture parcel of land. However, to get a plot loan the land must be within the hub location limit of the municipal corporation. If the land is outside the limits of the municipality, it is directly allotted by the said developing authority and then it is eligible for the loan. 

Lenders usually offer around 75% to 80% of the value of land as a loan amount, and the balance amount is to be paid by the applicant as a part of the down payment. As a formality of the plot loan, the borrower is required to provide a declaration that the home will be constructed on the said piece of land within two years from the date of funding. 

 A plot loan and a composite loan are different 

Lenders opt for a land loan only to purchase a plot or a parcel of land. It is a Loan for Land Purchase. The scheme of composite loans comprises both construction as well as the cost of land. When applying for a composite loan, you must share the construction plans with the lender or lending authorities. Hence, if you plan to start the construction of your home at a later period, it is always advisable to apply for a land loan. 

 

Below mentioned are the major differentiators between a composite loan and a land loan: 

ParticularsComposite LoanLand Loan
PurposeIt is a bank credit that comprises a plot price and an estimated cost of constructing a home. You can opt for a land loan only to buy a parcel of land. 
Interest RateComposite Loan Interest Rates start from 7.25 per cent to 10.05 per cent depending from bank to bank. Interest for land loans starts from 7.7 per cent to 13 per cent depending on bank to bank and the principal amount. 
DurationRepayment duration varies from 10 years to 30 years. Repayment duration varies from 10 to 20 years. 

 

Final words

Before opting for a land loan or composite loan, measuring the requirement, repayment capacity, and budget is always necessary. 


 

Frequently Asked Questions:

Q. Interest rates are lower for which type of loan, composite loan or land loan? 

A: Interest rates are usually lower for composite loans. 

Q. Can we get a plot loan on agricultural land or in a green zone? 

A: No, as per the government laws, you cannot get a plot loan on agricultural land.