loan against PPF

All you need to know about loan against PPF

Public Provident Fund is a government-backed saving-cum-tax-saving investment instrument where you can invest your funds for a lock-in period of 15 years and further extending for a period of five years. Opening a PPF account is easy, and you need to deposit a minimum amount of Rs. 500 in your PPF account. You can invest up to Rs. 1,50,000 in your PPF account in a financial year. The principal amount, interest earned and the amount received at the end of maturity period are not taxable in India. Another significant feature about PPF online is that you can take a loan against your PPF account.

Loan against PPF account: Basic Rules to take a loan

Any individual who has invested in a PPF account can take a loan against the PPF account. However, the facility to take this loan is available at the end of the 3rd financial year. You need to repay the loan within 36 months at the end of 6th fiscal year. For instance, If you have opened your PPF account in the year 2017-2018, you can take the loan against PPF account on 1st April 2019, and you need to repay the loan on 31st March 2022. At the end of 6th fiscal year, you can withdraw funds from PPF accounts prematurely.

The interest rate on loan against PPF account:

The interest rate on loan against PPF accounts is 2% above the interest received on the PPF deposit. Presently, the interest rate on PPF accounts is 7.10%, which was revised by the Finance Ministry on 1st April 2020. As per the revised interest rate on PPF account, the interest rate for loan against PPF also changes. However, once a loan is taken, the interest rate remains constant.

What happens if you don’t repay the loan against PPF account:

If the borrower does not pay the principal amount taken towards the PPF account, then the interest rate on loan increases to 6% above the interest received on the PPF account. However, in case of failure of payment of interest, the amount is deducted from the balance of PPF account. 

loan against PPF

Other things you need to know about loan against PPF account:

  • You cannot take a second loan against your PPF account if you haven’t paid the first loan.
  • You can avail loan amount up to 25% of the total balance accumulated at the end of 2nd financial year.
  • The borrower needs to pay the principal amount of the loan first, and then the interest accumulated on loan can be paid within 36 months of taking the loan.

Advantages of taking a loan against PPF account: Loan against PPF account is like a personal loan that borrowers can take to meet short-term financial needs. These are some of the advantages of choosing a loan against a PPF account.

  1. No collateral: The process of taking a loan against a PPF account is simple, and you don’t require any security or collateral for taking a loan.
  2. Flexibility: Borrowers can repay the loan flexibly in two or more instalments using a lump-sum payment or in monthly instalments.
  3. Low-interest rate: The interest rate on loans against PPF accounts is far lower than a personal loan. Presently, the interest rate on loan against PPF is 9.10%.
  4. Repayment of loan: You can repay the loan against PPF at the end of 6th financial year within 36 months in two or more instalments.

Conclusion: Loan against PPF is an ideal choice for PPF investors to meet short term financial needs at a lower rate of interest without affecting the amount deposited in the PPF account and earn tax deductions on the investment as well.

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