During times of financial strain, it’s not always feasible to break your policies or savings prematurely. Instead, a more economical and efficient alternative is taking a loan against your Public Provident Fund (PPF).
Why Choose PPF Loan?
- Cost-Effective: Compared to personal loans, PPF loans come at a much cheaper interest rate. Personal loan interest rates can range anywhere from 10.50% to 17% or even 18%. In contrast, the interest rate on a PPF loan is usually 1% higher than the PPF account’s prevailing interest rate. So, if you’re getting an interest of 7.1% on your PPF account, your loan will bear an interest of 8.1%.
- Flexible Repayment: Once you avail a PPF loan, you’re given a decent amount of time to repay it. You can repay the loan in up to 36 installments or three years. The flexibility also allows you to decide the number of installments suitable for you. Initially, you repay the principal amount of the loan, followed by the interest, calculated based on your repayment duration. If you come across a lump sum amount, you can also repay the loan in full. However, failing to repay within 36 months will incur an additional interest of 6%.
Conditions for PPF Loan:
- Your PPF account should be at least one financial year old.
- Loan facilities aren’t available after the fifth year as you can partially withdraw your amount from the PPF account.
- You can borrow only up to 25% of the balance in your PPF account.
- A loan can be taken only once from a PPF account, regardless of whether the previous loan was repaid.
How to Apply for a PPF Loan?
To apply for a PPF loan, visit the bank branch where your PPF account is held. Fill out the required loan application form. For instance, in State Bank of India (SBI), you need to fill ‘Form D’ for this purpose. Along with the form, specify the loan amount and the repayment tenure. If you have taken any previous loans, mention them as well. Submit your PPF passbook, and usually, within a week, your loan gets approved.
PPF loan can be a lifesaver during financial emergencies. It’s a cost-effective option with flexible repayment terms, making it a preferable choice over other loans for many individuals.