What Are Construction-Linked Payment Plans? What Can Be The Best Plan For You?

What are Construction-Linked Payment Plans?

The construction-linked payment plan is a flex payment method which brings together buyers, builders, and financial institutions so that each party may make the arrangement into a successful business transaction. 

In this payment method, the money is paid to the builder by bank institutions on behalf of the homebuyer based on the project construction stage.

Even though the buyer has restricted money for purchasing property, he still is capable of booking a property. 

Due to this, the developer gets the funds in advance from this transaction for the construction rather than using their own funds or borrowing from other institutions.

The buyer is subjected to paying EMI once the bank starts the money disbursement to the builder.

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How is CPL Payment Plan Implemented?

In the CPL payment plan, the bank is responsible for paying the money to the developer which is dependent on the progress of the project construction.

Keep in mind that the bank institution is actually providing the funds to the buyer in this case rather than the builder directly. 

However, because the development is still only on paper, it gives the builder the loan amount in instalments based on how far along the development is.

In simple words, the banks will transfer to the builder a fraction of the total money borrowed from the buyer each time a specific stage of the project is finished.

How can you calculate EMI in a Construction-Linked Payment Plan?

There are a lot of misunderstandings regarding the payment in CLP plans.

The buyer must first understand that these are not similar to subvention schemes, where they are exempt from making EMI payments until they take ownership of their property. 

In a construction-linked plan, the EMI begins as soon as the bank gives the builder a particular segment of the loan amount. 

The EMI keeps rising in line with the expansion of the bank’s loan disbursement to the builder.

You can also calculate the EMI with the help of an EMI calculator.

Also, check out What is a Home Loan Protection Plan and What are its benefits?

What are the Advantages of a Construction-linked payment plan?

Buying a property which is still under construction comes with a lot of benefits such as the price of the property being relatively less compared to the ready-to-move-in property. 

Also, under-construction property gets a good appreciation rate until the project completion.

Another benefit of investing in under-construction property is the Flexi payment option for buyers. 

Here are the advantages of a Construction-linked payment plan for buyers.

• The builder gives priority to finishing the project on schedule so you can take possession as soon as possible.
• The pre-EMI interest is only due during the expected building period.
• As construction advances, the amount of your housing loan EMIs constantly increases.
• This provides you more time to better organise your money and get ready for timely home loan payback.
• As soon as you take ownership of the property, your full EMIs begin.
• You also get to book property at a lower price.

What are the Downsides of Construction-Linked Payment Plans?

The construction-linked plan payment method has some limitations such as

• You must accept the possibility that the project won’t be finished on schedule and possibly set aside money in case it is.
• The introduction of RERA in the real estate sector has made the process of purchasing a home simple.  If the developer delays the construction for more than the allowed building term, you will be overburdened with EMIs and home rent.

Comparison Between CPL Plan vs Upfront Payment

Upfront or down payment plans offer good savings, but they are risky because you might not end up with the property if there are construction or legal problems. Recovering your money may be difficult if this occurs.

In contrast hand, a construction-linked plan, which is dependent on construction advancement, is the least dangerous house loan payment plan. The developer will also aim to finish the project as soon as possible to start receiving payments.

Should You Choose a Construction-Linked Payment Plan?

Knowing that you have several possibilities for purchasing a property that is still being constructed, the final decision is up to you.

• Every builder-buyer contract is different and has a specific set of regulations and terms that each party to the contract is required to uphold. 
• Since the implementation of the property law, cases of agreements being totally biased in the builder’s favour have decreased, but buyers must still examine the fine print of the contract.
• While buying property many payment plans get shown under the same name, so before committing to such a plan, it is recommended to speak with a lawyer or a finance consultant.
• Also, make sure the builder is responsible and that you receive possession of the property as soon as possible.
• An under-construction property is an ideal alternative for a home purchase if you do not have a pressing need for it and it will appreciate better over time.

Also, check out Flexi Payment Plan: What Can Be The Best Payment Option For Buying a Property?

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