Vikram had a sudden requirement of money for his father’s hospitalization dues. He already had a home loan and a car loan to meet. In desperation he talked to his friend who advised him to enquire for taking a small loan against his PPF. Yes it is possible to take a loan against your PPF under such unforeseen and unplanned circumstances and with very low interest rate.
Though personal loan is one of the most common form of loan applied, another easy way used to cover immediate expenses without breaking the bank is a Loan against your PPF. With this option one can get credit against the money in their PPF account. So, which option is better when you are in urgent need of funds? Let us see the advantages offered on a loan against PPF.
A loan against PPF has a fixed time duration to be repaid within 3 years or 36 months, If the principal is repaid within the loan tenure, but there is a portion of the interest amount that remains for payment, the outstanding amount will be deducted from the PPF account balance of the individual.
For a loan against PPF, you can borrow a maximum amount of 25% of the PPF account balance at the end of the second year prior to the loan application year. For example, if you are applying for a loan in 2018-19, the loan amount will depend on the PPF balance at the end of 2016-17
A loan against PPF can help you deal with your liquidity crunch and financial requirement once every fiscal year. So you can apply for a loan again against your PPF in the next fiscal year.
You can withdraw from the PPF account after it matures 15 years from opening of the account. But you can also make partial withdrawals from the 7th financial years from account opening.
The interest rate for personal loan ranges between 11% to 24% per annum. However, in case of Loans against PPF, the rate of interest is always fixed at 2% more than the current rate offered on PPF balance, and it is much lower than any Personal Loan interest rates. The only condition being that you repay the loan amount within 3 years. In case of missing of loan payments, after the loan tenure is over, the interest rate jumps to 6% more than the current rate offered on PPF balance. The other positive aspect for a loan against PPF is that the interest accumulation on the original balance in your PPF account continues even after you have availed a loan against it.
So, if the loan amount you are eligible for in case of a loan against PPF is sufficient to meet your needs and you are able to repay it in the next 36 months it is worthwhile going for a loan against PPF, since it offers a much lesser interest rate.
The repayment of the principal amount of the loan can be done in two ways – 1. As two or more installment (on a monthly basis), 2. Or as a lump sum amount.
As the loan is against your PPF account savings, you will not be required to pledge any asset in the form of a collateral when taking a loan against your PPF account.