How to take Personal Loan for purchasing Agricultural Land

A personal loan given to finance the purchase of land used for agricultural purposes generally comes with a lot of conditions and stipulations. Such a loan is usually given to bring land under cultivation and to increase the agricultural production and productivity. Sometimes, small and marginal holdings are not economically viable. In this case, if they can be consolidated into a single land, the productivity can increase. To facilitate this, banks give personal loans for agricultural land.

Such types of Personal Loans are usually more commonly given by public sector banks and old generation private sector banks. The eligibility criteria are well laid out, and not everyone can avail such a loan. The small and marginal farmers as defined by NABARD, share croppers and tenant farmers are eligible for this loan. Since agriculture land personal loan is not a grant, the repayment capacity will be taken into consideration by banks. So it may be specified that the borrower should have surplus income from production or any other source of income to repay the bank.

In addition to the eligibility criteria of the borrower, there are certain requirements to be satisfied by the land for which the land loan is taken. Although different banks have different criteria, the general conditions are more or less the same. The land should be within the village limits or within a certain distance of an already existing land of the borrower. It should be used for agricultural purposes or for allied activities only and the purpose should be stated to the bank. Some banks impose a restriction on the size of the land that can be purchased under a single loan.

This type of loan generally comes with margin requirements of 10%-20%. Some banks may waive this if the loan amount is small. However, this varies from bank to bank. The cost of the land is ascertained by the bank by cross-checking the price quoted with the area’s registrar or sub-registrar. Some banks include the development cost and the cultivation expenses also as a part of the loan. It is up to the borrower to provide all the relevant documents to the bank for verification.

The interest rate depends on the credentials of the borrower and this varies from case to case. It is a mark up on the base rate of the bank. Since this qualifies as an agri-loan, the interest rate is not marked up to a large extent. A Personal loan to purchase agricultural land is required to be backed by adequate security in the form of mortgage of the land to be purchased and the hypothecation of the crops or any asset. Sometimes, if the credentials of the borrower need further validation, an existing land parcel belonging to the borrower may also need to be pledged as collateral security. Repayment of the loan generally varies between 7 to 12 years, with a moratorium of 24 months.

Since these Personal Loans are given to small and medium farmers, the sanction and disbursal of the loan usually takes place at the branch level. The borrower should approach the branch and the bank official will then give directions.

Purchase of land is fraught with risks as the title deeds should be clear and the land should be free from encumbrance. Banks therefore take a long time to ascertain the validity of the loan and therefore the process of loan sanctioning can take longer than it is usually taken for other loans.