PPF (Public Provident Fund) is a long-term scheme with numerous benefits that make it a secure and lucrative investment option. Besides using it to generate wealth, you can avail a personal loan against PPF and get funds affordably.
However, there are certain details that you need to know before applying for a personal loan on a PPF investment. Read on to know these details and make informed borrowing decisions.
Before delving into the details of a personal loan against PPF, there are some important PPF details that you should know.
It is a long-term investment scheme with an extendable tenure of 15 years.
It is a government-backed scheme, making it a secure option.
PPF investments enable you to save on a regular basis to accumulate a hefty corpus and earn generous returns.
You can enjoy tax benefits u/s 80C for the investments you make in the scheme.
With regards to getting a personal loan against PPF, there are certain rules and conditions that you need to remember. The most important rule is that you can get a personal loan on PPF only between the third and sixth year after the date that you start investing.
The other aspect is with regards to the amount you can get a personal loan. You can get a maximum of 25% of the sum accumulated at the end of the second year immediately preceding the year for which you apply for the loan.
This means that if you have ₹3 Lakhs, you can get up to ₹75,000 as a loan. As you make the repayment, your PPF account balance will get restored. It is crucial to ensure that you repay the entire loan amount within the repayment period of 36 months.
You can repay the loan either in a single instalment or in multiple instalments. Keep in mind that until you repay the loan availed, your PPF account will not earn any interest. However, the interest rate for this credit is generally lower than the market personal loan interest rate.
You can also use a personal loan EMI calculator and a PPF calculator to understand how much you might earn and will have to pay. Doing so before you apply for the loan is crucial, as it will help you plan and prioritise your financial wellbeing.
The interest rate on a personal loan against PPF depends on the current interest rate for the scheme. At present, the interest rate is the current return rate + 1%. This means that the interest rate is 8.1%.
This is because the current return rate for the quarter, since April 2023, is 7.1%.
Keep in mind that you need to repay the borrowed amount within 3 years. If you fail to do so, the rate will rise by 6% instead of 1%.
Here are some of the top features and benefits that you can enjoy with a personal loan on a PPF account:
Quick access to funds without risking asset
Availability of the second loan if the first loan is repaid before the 6th financial year
Competitive interest rates to make financing affordable
A good credit score is not mandatory due to the nature of the loan
Remember that while you do need a good CIBIL score, maintaining your score is crucial to keep your creditworthiness intact. This is because a personal loan against PPF is not available from the seventh year. Post that, you can only make withdrawals.
Moreover, the withdrawals are available only under certain conditions and would ultimately hinder wealth generation efforts. During this time, you can get a regular personal loan, which requires you to have a good credit score for affordability and flexibility.
The scheme was launched to encourage savings, and therefore, withdrawals and loans are subject to certain terms and conditions. While you can get a personal loan on a PPF account between the third and sixth financial year, premature closure is only available after the fifth year.
However, even then, it is subject to the following conditions:
In case of a change in residential status (Resident citizen to NRI, etc.)
For life-threatening disease (account holder, spouse, or dependent)
Keep in mind that premature closure will attract a penalty of 1% interest from the date of opening or the date of extension, whichever is applicable. You can carry out the account closure process by submitting the required form with your passbook at the Post Office where you have the account.
Now that you know the details of a personal loan against PPF, assess your requirements before applying for it. Ensure that you meet all the conditions to enjoy easy access to funds. Moreover, like a personal loan on a PPF account, you can also apply for a loan against property, FD, or other avenues. Compare the affordability and loan amount available under these options to ensure that you make the right choice.
You can get a personal loan against PPF to the amount of 25% of the sum accumulated at the end of 2 years immediately, preceding the year in which you apply for the loan.
There are numerous rules that you need to keep in mind when applying for a personal loan on a PPF account. However, there are two important rules that you need to remember. The first is that you can get a loan only from the third till the sixth financial year.
The other is that you can get only 25% of the accumulated sum at the end of 2 years immediately preceding the year for which you avail a loan.
You can get a personal loan on a PPF account anytime between the 3rd and 6th financial year of your investment.
A personal loan on a PPF account works similarly to other loan accounts. As you repay the loan, your PPF balance will get restored. You can repay the amount in a single instalment or multiple instalments within the repayment period.
Once you repay the entire amount, your PPF balance will be restored to its full value. Additionally, if you repay the loan before the end of the sixth year, you can take a second loan. However, you can take only one loan in a financial year.
You can repay your personal loan against PPF in two ways - lump sum or instalments. Keep in mind that you have to repay the entire loan amount before the end of your tenure, i.e., 3 years.