A Public Provident Fund (PPF) is a popular savings scheme offered by the Government of India and it helps people save money over the long term and enjoy tax benefits. However, there is one feature many people are still not aware of. And it is – a PPF loan. Let’s find out what is a PPF loan, PPF loan eligibility, how to get a loan on PPF, and more. In this blog, we will also discuss the aspect of PPF loans vs personal loans.
What is a PPF Loan?
A PPF loan is a type of loan that allows you to borrow money using your PPF account as collateral. Here, the loan is only available for a short term and you are expected to repay it within 36 months. Unlike withdrawing funds from your PPF account, a loan allows your savings to keep earning interest while you borrow money. The interest rate on a PPF loan is also lower compared to other loans, like personal loans.
Eligibility Criteria for Taking a PPF Loan
Here’s what is considered for PPF loan eligibility criteria:
- You can take a loan only between the 3rd and 6th financial year of opening the account.
- Your account should be active and not closed or dormant.
- You can borrow only up to 25% of the balance in your PPF account at the end of the 2nd year before application.
- Only one loan can be taken at a time during the eligible period.
How Much Can You Borrow with a PPF Loan?
As mentioned earlier, you can only borrow a maximum of 25% of the balance that was available in your PPF account at the end of the 2nd year before your loan application. For example, if you apply for a loan in the 5th year of your account, you can borrow up to 25% of the balance available at the end of the 3rd year.
PPF Loan Interest Rate and Tenure
Here are the key points about the interest rate on a PPF loan and the repayment period:
- The interest on PPF loans is usually 1% higher than the interest you earn on your PPF balance. So, if your PPF earns 7%, your loan interest will be 8%.
- The loan must be repaid within 36 months (3 years).
How to Apply for a PPF Loan
Here are the steps on how to get a loan on PPF:
Step 1: Visit your bank or post office.
Step 2: Fill out the PPF loan application form.
Step 3: Submit the required documents including your PPF passbook.
Step 4: Wait for loan approval.
Step 5: Once approved, get the loan amount in your bank account.
Benefits of Taking a PPF Loan
- PPF loans have lower interest rates compared to personal loans.
- You do not need to withdraw from your PPF balance and hence, allow your savings to keep growing.
- You can take a loan without needing a credit score check.
- The loan application process is quite simple and quick.
Limitations of a PPF Loan
- You can only borrow 25% of your balance.
- You can only take a loan between the 3rd and 6th year of your PPF account.
- Unlike PPF withdrawals, PPF loans do not provide any tax relief.
- You can only take one loan during the eligible period.
PPF Loan vs. Personal Loan: Which One is Better?
You can consider the following factors to decide which is better:
- Interest Rate: PPF loans have lower interest rates than personal loans.
- Loan Amount: Personal loans allow you to borrow more money, while a PPF loan is limited to 25% of your PPF balance.
- Approval Process: Personal loans may be approved more quickly, especially through online platforms, while PPF loan approvals might take longer.
- Credit Check: Personal loans require a credit score check, while PPF loans do not.
Conclusion
There is no doubt that a PPF loan is a great way to borrow money without touching your savings. However, you can borrow only a limited amount through PPF loans. If you are looking for larger funds, try CASHe. Download the CASHe app and you can get instant personal loans up to ₹4 lakhs with competitive interest rates and flexible repayment periods.
