Loan Against PPF Account

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.

Loan Procedure   

PPF Account

                                 PPF Account

  • 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.

PPF Loan

  • 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.

Loan Repayment

  • 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.

Benefits

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.
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Peer to Peer Lending Concept

Peer to peer (P2P) lending is a concept that seems to be taking the short-term credit market in India by storm, lending to those who can’t secure loans from banks for whatever reason.

This article contains information about how the peer to peer lending industry is doing after collating and analysing various pertinent statistics and aspects of the industry.

Interest rates

The primary factor in any short or long term credit product is the interest rate on which the loan is given. The interest rates for P2P loans are calculated a bit differently as compared to how banks do it. Interest rates are determined based on a person’s risk category, which is determined based on his/her performance with debt. Spending patterns and fund allocation towards clearing debt versus shopping, etc. are taken into consideration to determine creditworthiness.

The average interest rates for borrowers deemed to be in the low-risk category are around 14% – 15%, medium-risk borrowers get loans for around 22% interest, and interest rates for high risk borrowers can go up to 32%. Compared to Personal loan interest rates (13% to 22%) depends upon loan institutions.peer to peer loan

The P2P model allows for a “reverse-auction model” where borrowers can pick between lenders offering loans at competing interest rates.

Purpose of loan

As the data suggests, the majority chunk of loans (30%) are being disbursed to businesspersons, primarily in the service industry. Most of these disbursements have been to boutique owners, Ayurvedic doctors looking to expand their facilities, employment consultancies, etc. who don’t have much in the way of valuable, physical collateral that can be pledged to secure a loan from traditional sources. P2P loans don’t require any collateral, security or guarantor, and are hence perfectly suited to SMEs in the service sector who wish to expand and capture a larger market share.

The second largest demographic of P2P borrowers (20%) are those seeking to consolidate their debt (primarily credit card debt) into one low interest loan. This is a large demographic and is growing at an alarming rate, but with debt-consolidation mechanisms like P2P loans around, it seems like there’s some breathing room for those burdened with debt from the irresponsible use multiple credit cards.

The third largest chunk of P2P loans (7.3%) are disbursed for the purposes of funding borrowers’ weddings. Peer to peer loans can generally be acquired at lower interest rates than personal loan Interest rates from banks (depending on the borrower’s risk rating). Many people are choosing P2P lending networks as sources of funding their weddings over the traditionally preferred personal loans, which aren’t being approved largely because of borrowers’ credit ratings.

The remaining 43% of all P2P loans are being disbursed for various reasons including family events, home improvement, vehicle and appliance purchases, medical requirements, etc.

Geographic localization of loan disbursements

P2P loans are very popular in the Delhi-NCR region, as over 2,592 enrolments have been registered from just that region alone. Bangalore, Mumbai, Pune, Hyderabad, Kochi, Chennai and Kolkata follow suit, in that order. North India seems to be where these loans are most popular, but increasing awareness in the south is helping spread this concept. Loans have been registered from cities like Shimla, Guwahati, Rajkot and Madurai as well, which adds credence to the idea that these loans are primarily sought by those who have no access to mainstream credit facilities.

Tenure and requested amount trend

Longer loan tenures of up to 3 years (or 36 months) are the most popular, followed closely by 2 year tenure loans and then by 12 month loans and 6 month loans. The number of requests processed for 3 year loans more than doubled requests under all other tenure options.

The average loan amount requested by borrowers as sub-categorized by risk level is as follows:

  • Minimal risk – Rs.4 lakh.
  • Low risk – Rs.17 lakh.
  • Medium risk – Rs.21 lakh.
  • High risk – Rs.29 lakh.
  • Very high risk – Rs.39 lakh.

It’s clear that the P2P loan sector has a long way to go to secure a huge share in the short-term credit market, but companies like Faircent.com are paving the way for the sector to grow.