Loan against PPF Account

The Public Provident Fund scheme, which was established in 1968, allows individuals to make small savings while receiving returns on those savings. The PPF scheme provides attractive returns while exempting investors from paying taxes on their earnings.

PPF accounts allow subscribers to take out personal loans against the account's available balance at a competitive interest rate. This is advantageous for individuals seeking short-term loans without pledging any assets as collateral.

How To Take a Loan Against PPF

PPF investments are considered one of the safest and most beneficial modes of investment, and they also provide loans against the amount invested. Account-holders can take out a personal loan against their account investments at competitive interest rates.

When applying for a loan against a PPF account, the following factors must be considered:

Things to know about PPF account

What you should know about a PPF account is as follows:

Why should you take a loan against PPF account?

A loan against your PPF account can be beneficial in a variety of ways. Here are some of the main advantages of doing so:

1. No collateral or mortgage is required

When taking a loan against your PPF account, you will not be required to pledge any asset as collateral.

2. 36-month repayment period

The loan can be repaid in 36 months. This timeline begins on the first of the month following the month in which the loan is approved. For example, if the loan was approved on January 25, 2018, the loan term of 36 months begins on February 1, 2018.

3. Low-interest rates

One of the most significant advantages of taking out a loan against your PPF account is the low-interest rate. Interest rates are significantly lower than those of traditional bank personal loans.

4. Flexibility in repayment

The loan's principal amount can be repaid in two or more installments (on a monthly basis) or as a lump sum.

PPF account closure

Premature closure of a PPF account is permitted only after 5 years from the end of the fiscal year in which the account was opened. However, this is only permitted under certain conditions, such as:

According to the most recent changes to the Public Provident Fund Scheme 2019, premature closure of a PPF account is now permitted under the following conditions:

However, when applying for PPF premature closure under any of the conditions listed above, the account holder must provide the following documents:

It should be noted that premature closure of a Public Provident Fund account carries a 1% reduction in the rate at which interest is credited to the account.

What is the interest rate for a loan against PPF?

The interest rate on the loan against PPF has been set at 1% higher than the accrued interest on the PPF balance. As a result, the interest rate on this loan is subject to fluctuation. The current annual interest rate on PPF is 7.10%.

The loan is repayable in 36 monthly installments. If the loan is not repaid within 36 months, the interest rate will be increased to 6% higher than the PPF account interest rate. The principal loan must be repaid first, followed by the interest, which must be paid in two installments or less. 

If the borrower repays the principal amount but not the accrued interest within the loan term, the outstanding amount will be deducted from his PPF account.

Loan Against PPF Account Related FAQs

Ans: Account holders are eligible to borrow against their PPF account between the third and sixth fiscal years after opening the account. Following that, individuals can only withdraw a portion of their PPF account balance.

Ans: The interest charged on the loan against the Public Provident Fund account is 2% higher than the interest earned on the PPF account balance.

Ans: Only 25% of total investments made at the end of the second fiscal year preceding the year in which the loan was applied for can be withdrawn.

Ans: The account holder must repay the loan amount within 36 months of borrowing, after which the interest rate on the borrowed amount will increase from 2% to 6%.

Internal Links

Was this information useful?

300 characters allowed (alphanumeric and special characters such as comma, full stop, @, ", &)

Thank you. Your feedback is important to us.