If a farmer has a piece of land in his/her name, that can be used as collateral to obtain a loan from a bank or a financial institution. When a borrower pledges agricultural land for money it is called a 'Loan Against Agricultural Land' or 'Agriculture Loan'.
Agricultural loans are generally taken by a farmer to fund seasonal agricultural operations or related activities or for the purchase of land or agricultural tools. or for the expansion of current operations. This type of loan also helps to buy various agricultural inputs such as fertilizers, seeds, insecticides etc. and to employ labour for cultivating and harvesting crops.
Farmers can obtain loans against agricultural land at as low as 7% p.a. with processing fees ranging from 0% to 4%.
Loans Against Agricultural Land
Farmers in India incur massive expenses while cultivating crops. Most of the time, they barely make profits and struggle to repay their debts. We have heard the cries of the agriculturists in India lamenting about the low prices they get on their produce, the high cost of fertilizer and seed, and inconsistent weather.
To continue farming, they borrow from private lenders who charge a very high rate of interest which makes things worse. To help farmers in India by offering them financial aid when required, many banks in India offer agriculture loans.
Features of A Loan Against Agricultural Land
Loans against agricultural land are specially designed for people who cultivate crops like farmers, planters, or horticulturists. It cannot be availed by a businessman or a professional.
- Usually, the farmer does not have to furnish Income Tax Returns to apply for this type of loan.
- It requires minimum documentation.
- The loan tenure goes up to 20 years with many banks.
- There are no hidden charges on Agriculture Loans.
- The lender usually works out a flexible repayment plan considering the farmer’s situation.
- The turnaround time is fast and the banks are sensitive to the harvest season.
- The borrower can use the funds for agricultural purposes like food processing, buying agricultural equipment, setting up dairy units/fisheries/rice mills, or micro-irrigation.
- They can also use the funds to set up a greenhouse, cold storage, or a horticulture centre.
- To buy agriculture insurance to protect from crop losses.
- You can use the funds to buy livestock or cover your marketing and operating expenses.
Eligibility Criteria for Loan Against Agricultural Land
- Farmers, dairy owners, horticulturists, and any orchard owners are eligible to apply for an agriculture loan.
- Most lenders prefer the age of the applicant to be within 24 to 65 years of age. However, few banks offer loans to applicants who are 18 years of age. The eligibility differs from one bank to another as well as on circumstance.
- If the land is owned by two people, co-applicant is mandatory.
- Agricultural land is pledged as collateral. The borrower should have clear titles to the land to be eligible to apply for a loan against agricultural land.
- Usually, lenders prefer borrowers to have residence stability of 2 years.
Strategies to repay loan against Agricultural Land
Here are a few tips for repaying a loan against agricultural land in case a farmer is facing issues concerning the plan to repay a loan against agricultural land:
- Take crop insurance so that in case of crop failures, there is enough insurance coverage to repay the loan instalments.
- Build up a contingency fund to cover future crop failures and thus repay the loan instalments on time.
- Enter in partnerships with those who can contribute capital as equity and these can help to grow the business and also act as emergency funds in case of crop failures.
- Whenever there is a surplus or very good crop yielding more than expected gains, try to repay a major component of the loan amount.
- Keep track of various interest subvention and loan waiver schemes or agricultural loan subsidy schemes being floated by the government from time to time to protect the interest of the farmers.
- Do not rely only on agricultural or farm income, build up a secondary source of income to cover up the unexpected crop failures.
Repayment options for loans against agricultural land
Below are the various repayment options that can be considered:
- Equated Monthly Installments (EMIs): You pay the total amount of money you owe in smaller amounts over time. They offer flexibility and can be divided into two types: Step-Up EMIs, which gradually increase your repayment capacity over time, and Step-Down EMIs, which strategically reduce your repayment burden.
- Bullet Repayment: Accelerating debt clearance with lump sum payments
- Prepayment and Foreclosure: Early debt clearance
Conclusion:
Repayment options Loan against agricultural land are not just about numbers and financial calculations; they are powerful tools that shape your financial journey and empower you to achieve your dreams. By understanding the diverse repayment options available, you can tailor your repayment plan to suit your unique circumstances, aspirations, and income trajectory.
If you are looking for loans to fund your agricultural business, Tata Capital offers attractive loan against property option. Check your eligibility today!
FAQs
1. How do I repay a loan against agricultural land?
The repayment tenure is fixed by the bank based on the anticipated harvest and the marketing period of the crops. It is usually fixed at 1 year for regular crops and at 18 months for crops like sugarcane, banana, pineapple, etc.
2. What are the risks of not repaying a loan against agricultural land?
The farmer may be forced to take additional loans at very high interest rates which ultimately may push him into a debt burden without any sufficient source of income to repay the loan instalments and may eventually lose his land as well.
3. On what basis is repayment of agriculture loans fixed?
The repayment period may be fixed by banks as per the anticipated harvesting and marketing period of the crops. It may be in monthly, quarterly, half-yearly or yearly instalments.
4. How can the government help farmers to repay the loan?
What can the government do to ease the loan burden when a farmer's crops fail, if the crop failure is properly documented? They can reduce interest. They can ask the farmer to repay later without increasing the interest. They can ask the farmer not to pay in the worst cases.
12 September 2023
6 mins read
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