How to take loan against a PPF account

Public Provident Fund (PPF) is a popular savings scheme in India, known for its tax benefits and guaranteed returns. However, many are unaware that their PPF account can also be a source of quick funding. If you’re in need of an instant loan and have a PPF account, you can leverage it to get the funds you need. This blog will guide you through the process of taking a loan against PPF account in India.

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Understanding the Loan Against PPF

An instant loan against a PPF account is a facility provided by the government that allows PPF account holders to borrow money against the balance in their account. This can be particularly useful in times of financial emergencies, as it offers a way to access funds without breaking your PPF investment.

Key Features of the Loan Against PPF

– Loan Amount: You can borrow up to 25% of the balance in your PPF account at the end of the second financial year preceding the year in which the loan is applied.

– Interest Rate: The interest rate on a loan against PPF is 1% higher than the prevailing PPF interest rate. For instance, if the PPF interest rate is 7.1%, the loan will be charged at 8.1% per annum.

– Repayment Period: The loan must be repaid within 36 months. If not repaid within this period, the interest rate will increase.

– Eligibility: Loans can be taken between the 3rd and 6th financial year of opening the PPF account. After the 6th year, the loan facility is no longer available.

Steps to Take an Instant Loan Against PPF

1. Check Eligibility

Before applying for a loan against your PPF, ensure that you meet the eligibility criteria. You should have completed at least three years with your PPF account but not more than six years. Additionally, check your account balance to determine the loan amount you are eligible for.

2. Calculate the Loan Amount

You can borrow up to 25% of the balance at the end of the second financial year preceding the loan application year. For example, if you apply for a loan in the financial year 2023-24, you can borrow 25% of the balance as of March 31, 2022.

3. Obtain the Loan Application Form

Visit your PPF account holding bank or post office and request the loan application form. You can also download the form from the respective bank’s website if available.

4. Fill Out the Loan Application Form

Complete the loan application form with accurate details. The form will typically require:

– PPF account number

– Loan amount requested

– Signature of the account holder

Attach the necessary documents, such as a copy of your PPF passbook, for verification.

5. Submit the Application

Submit the duly filled loan application form along with the required documents to the bank or post office where your PPF account is held. Ensure all details are accurate to avoid any delays.

6. Loan Disbursement

Upon verification of your application, the loan amount will be disbursed directly into your savings account linked to the PPF account. This process is relatively quick, making it a good option for an instant loan.

Repayment of the Loan

The loan against PPF must be repaid within 36 months. The repayment can be made in lumpsum or instalments. Here’s how the repayment process works:

– Principal Repayment: The principal amount can be repaid in lumpsum or in up to 36 monthly instalments.

– Interest Repayment: The interest on the loan must be paid in two or more monthly installments after the principal is fully repaid.

If the loan is not repaid within the stipulated period, the outstanding loan amount is debited from the PPF account balance, and the interest rate on the loan increases by 6%.

Benefits of Taking a Loan Against PPF

– Low Interest Rate: The interest rate on a PPF loan is significantly lower compared to personal loans or credit cards.

– No Impact on Credit Score: Since it is not a conventional loan, it does not impact your credit score.

– No Collateral Required: The PPF balance itself acts as security for the loan, so no additional collateral is needed.

– Quick Processing: The loan application process is straightforward, and the disbursement is quick, providing instant funds when needed.

Taking a loan against a PPF account is a smart way to access instant funds in times of need without disturbing your long-term savings. With a low-interest rate, easy repayment terms, and no impact on your credit score, this facility offers a convenient and cost-effective borrowing option.