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About Tractor Loan

An integral part of agricultural activity and farming is having a tractor. It is also used for other purposes. It plays a very important purpose of transferring produce from farms to the market. Also, it helps in transporting supply materials from the market to the place of produce. In villages it is also used as a means of transport for people to move from one place to another. Many banks have acknowledged the need for financing this very important equipment. Not only banks but NBFCs (Non-Banking Financial Companies) and other financial institutions extend this type of loan. The loan finds good demand in the rural and semi-urban parts of India. While one can avail vehicle loan from banks to fund their tractor, the tractor loan which is specially customized to provide favorable terms would prove to be advantageous.

Tractor Loan
Tractor Loan

Overview of Tractor Loan

Tractor loans fall within the category of agriculture loans. This loan can be applied by an individual or group of individuals. The repayment can be done by the entire group of individuals or by a single individual within the group. This loan follows the equated monthly installment (EMI) schedule. This is a secured loan and is like that of vehicle loan. In the event of default, the tractor will be taken into possession by the financier.

Eligibility criteria for availing Tractor Loan

There are specific eligibility criteria for availing tractor loan, it may differ from one lender to another. However, there are some standard requirements which are as mentioned here –

  • Any Indian resident can apply for tractor loan
  • Loan can be availed by single individual or jointly by a group of individuals
  • Individuals or business entities can apply for this loan
  • Stability of income and repayment ability should be established to avail this loan
  • Minimum land holding of 2 acres is mandatory to be able to borrow this loan

Key features of Tractor Loan

The key features which demarcate tractor loans from other form of loans are –

  • Margin percent applicable on these types of loan starts from 15%
  • Primary security of the loan is hypothecation of tractor and its accessories
  • Insurance against the tractor is mandatory in India; this can be availed from the financial institution which is lending or from any other authorized entity
  • Collateral for this loan is the tractor and its accessories
  • In addition, if required the bank or lender could insist on additional security in the form of land
  • Interest is charged at a minimum of 12% per annum on this type of loan
  • Loan tenure can be maximum of 7 years with a grace period of 1 month
  • Some banks allow repayment at various intervals such as monthly, quarterly and half-yearly
  • Processing charges applicable on this type of loan is typically 0.5% of loan amount
  • Loan value is upto 90% of price of tractor
  • Repayment terms include competitive interest rates, flexible tenure 12 to 84 months and multiple choices of repayment (post-dated cheques, standing instructions, electronic clearing system etc.
  • Some banks provide cover for accidental death or permanent total disability of the customer complementary to the insurance availed by the customer
  • Most banks extend tractor loans without additional collateral
  • Tractor loans are not restricted to farmers alone, it can be availed by any individual who establishes authenticity by completing the required documentation

Benefits of Tractor Loan

These are the key benefits that can be availed on tractor loans –

  • Easy processing and procurement :
  • Tractor loans are secured loans where the tractor itself is the collateral. Hence, the processing and disbursement of tractor loan is quick and hassle-free.

  • Online transaction :
  • The applicant has the option of applying online for this loan. The documents will be physically verified. The disbursement and subsequent communications are done through phone or email.

  • Low interest rate :
  • This loan falls within the priority sector loan. It is a part of the agriculture sector; hence the interest rates are lower as compared to that of vehicle loan. While vehicle loan can also be used for buying commercial vehicle such as tractor, the tractor loan is offered at a much lower interest rate. Thus, it is a more feasible option.

  • Easy documentation :
  • The documentation is quite standard in the case of tractor loans. The priority sector loans and secured loans are processed faster. The usual proofs – identity, address and income proofs are required to establish authenticity of the applicant.

Documents Required Tractor Loan

Below is the list of documents required for availing tractor loan. It may vary slightly across vendors, however, most of the documents listed here would be required. Depending on the loan quantum, income stability and credit score of the individual, the documents required may vary marginally.

  • Identity proof :
  • Acceptable documents include Aadhar Card, Voter ID Card, PAN Card, Passport, Driving License, Aadhar Card, Govt. issued document + Photograph, Bank Sign Verification + Photo

  • Age proof :
  • Accepted documents are - Voter ID Card with Date of Birth, PAN Card, Passport, Driving License, Aadhar Card, Govt. issued document with date of birth, Marks Sheet with date of birth

  • Ownership proof :
  • Electric Bill, Tax return, Water Bill, Sale document, Possession Letter

  • Income proof :
  • ITR, Bank statement for past 6 months

  • The above document must be submitted along with filled application form and latest photo.

Tractor Loan vs. Commercial Vehicle Loan

Both these loans can be used to purchase tractor, however, there are certain benefits and drawbacks for choosing one on top of the other. The features of both are listed below –

Point of differenceTractor LoanCommercial Vehicle Loan
Loan valueUp to 90% of cost of tractorUp to 90% cost of tractor
Interest rateLower (Priority sector loan)Higher (Normal rates applicable)
Tenure12 – 84 months12 – 60 months (some lenders offer up to 84 months)
Repayment scheduleEMI (Equated monthly installment)EMI (Equated monthly installment)
CollateralTractor and / or land equivalent to 100% of loan valueVehicle purchased

Frequently asked questions: Tractor Loan

1. Can the borrower foreclose or make part pre-payment towards the loan?

The borrower can foreclose or make part pre-payment subject to penal interest on the loan. The penal interest may vary based on the lender. Typically, the penal interest for foreclosure or pre-payment within 12 months from the date of disbursement will be higher than after the 12-month period.

2. Is a guarantor required for tractor loans?

This is a secured loan, hence, the tractor and additional collateral in the form of agricultural land is provided as security. Hence, there is no requirement of guarantor. However, some banks insist on a guarantor when the borrower is unable to bring in additional collateral in the form of agricultural land.

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