Individuals can avail of loans against a public provident fund only for short periods of time. According to experts, a PPF loan is one of the cheapest personal loans available. For instance, if you are in need of cash for a short period of one or two years, you are most likely to opt for a personal loan from your banks. However, personal loans taken from your bank can prove to be costly with interest rate ranging anywhere between 14 to 21%. However, if you take a loan against a public provident fund, you can get a at less than 11% rate of interest.
PPF Loan Interest calculation
Contrary to a home loan, interest on a loan taken against PPF account is charged on the loan amount regardless of partial payments. Interest will be charged on the principal for the entire loan period.
- Customers have to submit an application in the prescribed format.
- The loan application should be addressed to the bank manager.
- You should mention the loan amount and repayment duration in the application.
- You should mention any previous loans in the application.
- Customers have to enclose their PPF passbook.
- Customers will get a loan within one week, provided all the aforementioned steps are followed.
- You can avail of a loan facility against your PPF account only after completion of one year.
- Loan against PPF account is not permitted after the fifth financial year of opening the account. For instance, if you open a PPF account in December 2015, it will be considered open as on March 31st, 2016. Loan can be taken only at the end of one financial year, i.e, March 31st, 2017. The facility of loan is available only after 5 years from the opening of the account, i.e, March 31st, 2021.
- You cannot avail of more than 25% of the loan amount against your PPF account.
- The loan taken against your PPF should be repaid in three years.
- You can avail of a second loan against your PPF account only after the settlement of the first loan.
- Loan against PPF account can be taken only once in a year, even if the first loan is paid off.
- In case a subscriber fails to pay a minimum of Rs.500 in a year, he or she cannot take a loan against the PPF account.
- Loans taken against PPF accounts are flexible in terms of repayment.
- You can pay the loan in instalments or lump sum.
- Customers can opt for a specific number of installments.
- The loan taken should be paid within three years.
- After payment of the principal, the interest is calculated on the repayment period.
- Customers need to pay interest in two monthly installments.
- In case the principal is not paid in three years, the interest rate charged will be 6% from 2%.
- Upon default, a penalty interest rate of 6% will be levied on the loan. The penal interest will be charged to the balance amount in each financial year. In case the interest is not paid, it will be deducted from the PPF balance.
Customers can avail of several benefits on loans taken against PPF accounts are listed below:
- Interest rates offered for loans against PPF accounts are lower than personal loans. Also, the interest rate offered for loan is only 2% more than the rate an individual is earning from his or her PPF account. For instance, if the interest rate is 8.7% for PPF account, you can avail of a loan against PPF at 10.7%.
- Individuals don’t have to mortgage their properties to avail of a loan against PPF.
- Customers can repay their loans taken against PPF accounts in three years.
- There are no recovery agents for loans taken against PPF accounts unlike personal loans.