The Public Provident Fund (PPF) is a savings account in India that allows investors to make small deposits while receiving tax-free returns on their investments. PPF accounts allow subscribers to take out personal loans against their available balance at a competitive interest rate without pledging collateral.
The Public Provident Fund (PPF) is a long-term investment plan backed by the government that pays attractive interest rates and returns. These returns are entirely tax-free.
PPF account holders who meet the eligibility criteria can avail of loans in times of financial crisis. This is known as Loan Against PPF.
PPF account holders are eligible to borrow up to 25% of their balance after the third financial year as a loan. This facility is available until the end of the sixth financial year.
Every PPF account holder who has an account that is within the defined period is eligible for the PPF loan. This selected time spans the third through sixth years of the account.
When applying for a loan against a PPF account, the following factors must be considered:
Related Pages: How To Open PPF Account
PPF account benefits are numerous, and a loan against your PPF account is beneficial in a variety of ways. Here are some of the main advantages of doing so:
When taking a loan against your PPF account, you will not be required to pledge any assets as collateral.
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.
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.
The loan's principal amount can be repaid in two or more installments (on a monthly basis) or as a lump sum.
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 PPF interest history has fluctuated depending on the market. The current annual PPF rate of interest 2023-2024 or PPF rate today is 7.10%. Hence, the interest rate on a loan against PPF is 8.1%.
The loan is repayable in 36 monthly installments. If the loan is not repaid within 36 months or is only partially paid, 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.
While a loan against PPF serves as a respite in times of financial hardship, it has its fair share of disadvantages too.
A loan against PPF comes with several benefits. However, it has several drawbacks as well. When you are in urgent need of funds, a loan against PPF can be your saving grace as it comes at a lower interest rate than a personal loan. Make sure you understand the terms involved before going for a PPF loan.
Individuals can only withdraw 25% of their total investments.
For loans secured by a Public Provident Fund account, borrowers have a 36-month grace period during which they must repay both the principal and interest on their loans.
To take a loan against PPF, you can determine the loan amount by accounting for 25% of the available PPF amount. When your PPF account reaches its third year, you can submit an application for this loan. You should be aware that the loan option is available up to the sixth fiscal year.
You can only take one loan per fiscal year and a second loan can’t be taken until the first is repaid in full. Since the loan amount is fixed for each year, the loan can only be taken once per year even if it is returned in the same year.
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