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Buying land can sometimes be a great investment — for example, you could purchase land to use for building a home or commercial property. There are also several potential ways to pay for it, such as taking out a personal loan, land loan, or construction loan.
If you’re thinking about getting a personal loan to buy land, here’s what you should know:
- Personal loans vs. land loans vs. construction loans
- Taking out a personal loan to buy land
- Personal loan eligibility requirements
- Land financing alternatives
Personal loans vs. land loans vs. construction loans
There are a few types of loans that can be used to purchase land, including:
- Personal loans: Disbursed as a lump sum that can be used how you wish
- Land loans: Designed for borrowers who want to purchase land but don’t want to build on it immediately
- Construction loans: Available to potential homeowners who want to purchase land and immediately build a house on it
Here are several important points to consider as you compare your options:
|Personal loans||Land loans||Construction loans|
|Use||Almost any personal expenses (some lenders might have limitations)||For land purchase without immediate construction plans||For land purchase and immediate construction|
|Interest rate type||Fixed||Fixed||Variable|
|Interest rates||Fixed rates:
(with Credible partner lenders)
|Fixed rates: 4% to 5% APR||Variable rates: 5% to 10% APR|
|Down payment||None||20% to 50%|
(depending on the lender)
|10% to 20%
(depending on the lender)
|Repayment terms||1 to 7 years|
(depending on the lender)
|2 to 5 years|
(depending on loan type)
|12 to 18 months|
|Loan amounts||$600 to $100,000|
(depending on the lender)
|Depends on land value, down payment amount, and lender maximums||No specific maximum|
Personal loans are installment loans that can be used to cover almost any personal expense. You can typically borrow $600 to $100,000 or more and have one to seven years to repay a personal loan, depending on the lender.
If you decide to take out a personal loan to buy land, be sure to consider as many lenders as possible to find the right loan for you. Credible makes this easy — you can compare your prequalified rates from our partner lenders in the table below in two minutes.
|Lender||Fixed rates||Min. credit score||Max. loan amounts|
|9.95% - 35.99% APR||550||$35,000**|
|7.99% - 15.19% APR||700||$50,000|
|8.99% - 35.99% APR||600||$35,000|
|6.99% - 24.99% APR||660||$35,000|
|7.99% - 29.99% APR||Not disclosed by lender||$50,000|
|8.3% - 36.0% APR||600||$40,000|
|7.99% - 35.99% APR||580||$36,500|
|5.99% - 22.49% APR||660||$100,000|
|6.99% - 24.99% APR1||660|
(TransUnion FICO®️ Score 9)
|18.0% - 35.99% APR||None||$20,000|
|7.74% - 17.99% APR||660||$50,000
(depending on loan term)
|6.99% - 35.99% APR||640||$50,000|
|7.99% - 23.43% APR10||Does not disclose||$100,000|
|11.69% - 35.93% APR7||560||$50,000|
|7.96% - 35.97% APR||560||$50,000|
|5.4% - 35.99% APR4||580||$50,000|
Land loans are specifically designed for borrowers who are purchasing land but don’t have immediate plans to build on it. There are three main types of land purchases, each of which has its own kind of land loan. These include:
- Raw land: This is land that hasn’t been developed and has no connection to the electrical grid, sewers, or roads. This kind of land can be less expensive, but the loans typically require a higher down payment (often 20% or more) and come with higher interest rates. If you’re interested in a raw land loan, be prepared to provide the lender with extensive documentation of your plans to develop the land.
- Unimproved land: This kind of land is somewhat more developed than raw land and usually has some amenities and connections to utilities. However, it generally won’t have an electric meter, natural gas meter, or phone box. Because unimproved land loans are less risky to the lender than raw land loans, they tend to have lower interest rates. However, you’ll still likely need to come up with a down payment of 20% or more as well as have a detailed plan for development.
- Improved land: This type of land is already set up with access to utilities, roads, sewers, and other major amenities, which makes it less of a risk to the lender. But keep in mind that this also makes it more expensive than raw or unimproved land. An improved land loan will typically come with a lower interest rate and require less of a down payment than other types of land loans. On the other hand, rates on these loans are much higher than you’d pay on a traditional mortgage.
Land loans typically come with an initial repayment term of two to five years followed by a balloon payment at the end of the term. There are also some lenders that might offer longer terms if you plan to build a home on the land.
Learn More: How to Get a Personal Loan
A construction loan is used to purchase land, then fund the construction costs of building a new home or structure. The repayment term for a construction loan usually is only as long as the construction itself — usually 12 to 18 months. After the construction is finished, the loan will convert to a traditional 15- or 30-year mortgage.
Taking out a personal loan to buy land
While using a personal loan to buy land could be a good idea in some cases, it isn’t right for everyone. Here are some pros and cons to consider as you weigh your options:
Benefits of using a personal loan for land purchase
- Fixed rates: Personal loans have fixed interest rates, which means your payments will stay the same throughout the life of your loan.
- Might be less expensive: A personal loan could be less expensive compared to a land or construction loan since you don’t have to worry about a down payment.
- Fewer requirements: Unlike with land and construction loans, you don’t have to provide a detailed land development plan to take out a personal loan.
Disadvantages of personal loans for land purchase
- Fewer options for bad credit: You’ll typically need good to excellent credit to get approved for a personal loan — which means it could be hard to qualify if you have poor or fair credit.
- Smaller loan amounts: You can generally borrow $600 to $100,000 with a personal loan, which might not be enough to cover your expenses.
- Higher interest rates: Personal loans can come with higher interest rates compared to other funding options, such as traditional mortgages or home equity loans.
Learn More: Best Personal Loan Companies
Personal loan eligibility requirements
While eligibility criteria for personal loans can vary by lender, there are a few common requirements that you’ll likely come across, including:
- Good credit: You’ll generally need good to excellent credit to qualify for a personal loan — a good credit score is usually considered to be 700 or higher. There are also several lenders that offer personal loans for bad credit, but these loans tend to come with higher interest rates compared to good credit loans.
- Verifiable income: Some lenders have a minimum income requirement while others don’t. But in either case, you’ll likely need to provide proof of income so the lender can see that you can afford to repay the loan.
- Low debt-to-income ratio: Your debt-to-income (DTI) ratio is the amount you owe in monthly debt payments compared to your income. To get a personal loan, your DTI ratio should be no higher than 40% — though some lenders might require lower ratios than this.
Check Out: Personal Loan Requirements
Land financing alternatives
There are also several other potential ways to finance a land purchase. If a personal loan, land loan, or construction loan don’t seem right for you, here are a few alternatives to consider:
- Section 523 loans: These U.S. Department of Agriculture (USDA) loans can be applied for by nonprofit organizations to buy housing sites for low- and moderate-income families. Houses on these sites must then be constructed by the Self-Help method — meaning families will help build each other’s homes.
- Section 524 loans: These USDA loans are similar to Section 523 loans but don’t have any restrictions when it comes to construction method.
- Home equity loan: If you’re a homeowner, you might be able to tap into your home’s equity with a home equity loan. Like personal loans, home equity loans are paid out as a lump sum that you can use how you wish. They also tend to have lower interest rates than personal loans. However, if you can’t keep up with your payments, you risk losing your home.
- HELOC: A home equity line of credit (HELOC) could be another way for homeowners to utilize the equity in their homes. Unlike a home equity loan, a HELOC is a type of revolving credit that you can repeatedly draw on and pay off — similar to a credit card. Just remember that because your home secures the loan, you risk losing it if you can’t make your payments.
If you decide to take out a personal loan to buy land, remember to shop around and consider as many lenders as you can to find the right loan for your needs. This is easy with Credible: You can compare your prequalified rates from multiple lenders in two minutes — without affecting your credit.
About Rates and Terms: Rates for personal loans provided by lenders on the Credible platform range between 5.40%-35.99% APR with terms from 12 to 84 months. Rates presented include lender discounts for enrolling in autopay and loyalty programs, where applicable. Actual rates may be different from the rates advertised and/or shown and will be based on the lender’s eligibility criteria, which include factors such as credit score, loan amount, loan term, credit usage and history, and vary based on loan purpose. The lowest rates available typically require excellent credit, and for some lenders, may be reserved for specific loan purposes and/or shorter loan terms. The origination fee charged by the lenders on our platform ranges from 0% to 10%. Each lender has their own qualification criteria with respect to their autopay and loyalty discounts (e.g., some lenders require the borrower to elect autopay prior to loan funding in order to qualify for the autopay discount). All rates are determined by the lender and must be agreed upon between the borrower and the borrower’s chosen lender. For a loan of $10,000 with a three year repayment period, an interest rate of 7.99%, a $350 origination fee and an APR of 11.51%, the borrower will receive $9,650 at the time of loan funding and will make 36 monthly payments of $313.32. Assuming all on-time payments, and full performance of all terms and conditions of the loan contract and any discount programs enrolled in included in the APR/interest rate throughout the life of the loan, the borrower will pay a total of $11,279.43. As of March 12, 2019, none of the lenders on our platform require a down payment nor do they charge any prepayment penalties.