Agriculture is one of the most important aspects of a growing and large economy like India. It plays a very important role in the external and internal trade of the country. Agriculture also contributes significantly to the GDP (Gross Domestic Product) of the economy and is responsible for employing a large number of people.
Agricultural land is used by farmers to cultivate various crops. Sometimes, due to unforeseen circumstances like drought or heavy rainfall or some other weather conditions, they’re unable to cultivate or harvest crops on time. This leads to huge losses. To sail through these hard times, farmers opt for a loan against their agricultural land, which provides them with finance to cultivate crops, sell them and repay the loan.
However, there are certain pros and cons of taking a loan against agricultural land. Let’s look at some of them in detail.
Pros of Taking a Loan Against Agricultural Land:
Some of the pros of taking a loan against agricultural land include:
Low-Interest Rates: Loan against agricultural land is one of the lowest, this is one of the major benefits of taking a loan against agricultural land.
Minimal Documents: Only certain basic documents, such as photo ID, address proof, and deed of the agricultural land, are required to obtain a loan against agricultural land.
Short Processing Time: The processing time for the loan is very short. It usually takes around 3–5 working days for the loan to be approved and disbursed in the account of the farmer.
No Hidden Charges: In agricultural loans, all charges are mentioned upfront and no other charges are hidden. The entire process is quite transparent and ethical.
Flexible Repayment Tenure: The repayment tenure for loans against agricultural land is very flexible. There are multiple facilities concerning tenure in terms of short-term loans and long-term loans.
Government Intervention: The government of India started taking active participation in making the loan application process easier for the farmer. This has resulted in ease of application, competitive rates and extra support to the farmers in the form of counseling to the farmers concerning financial planning and execution for effective use of money.
Cons of Taking a Loan Against Agricultural Land:
Some of the cons of taking a loan against agricultural land include:
Difficulties in Valuation of the Agricultural Land: Assessing land value for loan purposes can pose challenges, attributed to factors such as land fertility, location, predominant crops, crop cycles and seasonal predictability. These variables collectively influence the land's productivity. Additionally, regions where diverse crops can thrive complicate accurate valuation, often making loan amount determination complex.
Additional Collateral: Sometimes the value of land may not be sufficient to cover the loan amount, and in this case, additional collateral may be required, which might put an additional burden on the person opting for a loan against agricultural land.
Limited Loan Amounts: Loan amounts that are disbursed may be in limited amounts which would not be sufficient for the farmer to cultivate crops and he might be compelled to take additional loan amounts which would put an additional loan burden on him.
Strict Eligibility Criteria: Stricter eligibility criteria, influenced by land valuation and borrower's credit history, can lead to loan unavailability against agricultural land. Farmers may then face difficulties in obtaining timely funds for cultivation essentials, causing potential losses due to delayed procurement and cultivation start.
Risk of Default: There is always a risk of default like every other loan, and in this case, there is always a risk of repossession which would lead to huge losses.
Conclusion
Loan against agriculture has its pros and cons and it is always advisable to take advice from a financial adviser to weigh those pros and cons and take an informed decision to not face any difficulties in the future. Also, it needs to be understood that like every other loan, there are risks involved in repayment. It might be risky especially if the loan to be taken is against agriculture as the successful cultivation depends on expectations from nature in the form of timely rains and overall good weather throughout the year.
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FAQs
Q1. What are the disadvantages of agriculture loan?
Some of the disadvantages include insufficient loan amount, requirements of additional collaterals and strict eligibility criteria.
Q2. What are the problems with agriculture loans?
Risk of default, bad crop or bad rainfall may affect the repayment of loan installments, leading to the piling up of additional loans and eventual risks turning into defaults.
Q3. Whom does loans against agricultural land benefit the most?
Loans against agricultural land are supposed to benefit the farmers the most so that they can fund their cultivation process, sell the crops and repay their loans with some gains.
06 February 2024
5 mins read
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