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About loan against PPF
PPF, also known as Public Provident Fund is a fixed-income investment scheme available for the general public to invest in it. These schemes allow individuals to save regularly over the long term to get interest over it. PPF account holders also get the opportunity to get a loan against the PPF account in the case of a cash churn situation, if the individual meets the eligibility. A cash churn situation can be defined as the rate at which individuals’ savings and cash diminish due to expenses, spending or financial commitments.
A loan against the previous account is beneficial for people because it has a low interest rate. A PPF-based loan interest rate is 1 more per cent than the government-set interest rates for the PPF amount. For example, if the current interest rate for the PPF is 6% annually then the individual can get a loan at 7%. Almost every bank including SBI, ICICI etc. provide loan against the PPF account so the account holders who have opened account 3 years before can apply for the loan.
Who is eligible for a loan against PPF
Want to take a loan against your PPF? Here are eligibilty criteria one must be aware of:
- You can only get this loan between the third and sixth year after you open your PPF account. After that, you can only take out some money, but not a full loan.
- The most you can borrow is a quarter of what you had in your account two years before asking for the loan.
- If you’ve taken a loan before, you can’t get a second one until you’ve paid the first one back.
- The interest on the loan is 2% more than what your PPF account earns. If PPF rates change, your loan interest might too.
- Once your loan interest rate is decided, it stays the same until you pay the loan off.
- If you don’t pay the loan back in 3 years, your interest will go up by 6% more than your PPF account earns.
- If you don’t pay back the interest on your loan, it gets taken from your PPF account.
- When you start paying back, first clear the main loan amount and then tackle the interest. You can spread the interest payments over two months.
Note: As per the Indian Post website, it has been identified that a loan can be taken by individuals for up to 25% of the balance to their credit at the end of the second year immediately preceding the year in which the loan is applied. There are various banks that provide loans against the PPF account such as PPF Bank of Baroda, HDFC, SBI, etc.
Interest rates for loans against PPF wrt. to different banks
|Bank||PPF interest||Loan interest|
Can we take loan against PPF
The PPF investors who need funds in emergencies face issues with withdrawal as the PPF allows investors to withdraw amount only after 6 years of investment. Loan against the PPF account is one of the best options to get funds immediately.
Here is the procedure that could be helpful for the investors to apply for a loan against a PPF account.
- The first step will be to collect Form-D from the nearest post office or home branch.
- Fill out the form including the amount the borrower needs and submit it to the post office where the PPF account is located.
- When the person is filling up the form, they are required to fulfil details including the amount they have applied for, the account number, a copy of the passbook and others.
Things to be aware of before taking a loan
- If the loan amount is paid off by the account holder, but part of the interest amount is left, then it will be directly directed from their PPF account.
- The account holders need to understand that they have to pay the principal amount first then they have to pay the interest in the form of two or a few monthly instalments.
- The individual is only eligible for the second loan if they have paid their old use and payment has been cleared. additionally, every account holder has a specific loan amount that is fixed each year and only can be taken once a year even if they have paid all dues.
- Once the PF account holder takes the loan, they do not get any interest on the account balance.
Features of taking a loan against a PPF account
- Every person who has a PPF account is eligible to take the loan against their PPF account.
- It is one of the best methods to get a loan at lower interest rates.
- The interest rate paid by the individual on their loan is fixed by the government and it is reviewed regularly which creates trust and is also beneficial for the account holders.
- The individual account holder has around 36 months to repay the loan. this timeline is calculated from the first day of taking the loan until the 36-month big and paying all dues.
- The repayment of the principal amount for the loan taken by the individual can be done either in two or more instalments or as a lump sum amount.
Based on the above discussion, it is quite simple to get a loan against their PPF account. Individuals can apply after the account opening of 3 years and get a loan with a low interest rate. Taking the loan against the PPF account does not involve any collateral and it is also considered as a hassle-free procedure. Apart from this, account holders get 36 months to repay the loan. Therefore, it becomes easy for them to arrange funds during an emergency time.