Loan Against PPF

What is a Loan Against PPF?

The Public Provident Fund (PPF) functions as a long-term investment plan, yet situations may arise when funds are needed for various expenses. If you find yourself requiring only a portion of the funds from your PPF account, you can opt for partial withdrawals. However, such withdrawals are permitted only if the account has been active for a minimum of six years. If the need for funds arises before this duration, exploring the option of obtaining a loan against your PPF account becomes viable.

The facility for a PPF account loan is available to those seeking funds before completing six years of investment. Specifically, you can avail of a PPF loan between the 3rd and 5th years after opening the account. The amount you can borrow against your PPF account is subject to certain limits, with the maximum being 25% of the balance in the account two years before submitting the loan application.

Features Of Loan Against PPF Account

Here are some key features of a loan against PPF:   

• A PPF loan is accessible to all individuals with a PPF account.
• Account holders can choose to avail of this loan between the 3rd and 6th financial year after the commencement of their PPF account.
• Partial withdrawal from the account becomes eligible from the seventh financial year onwards.
• The maximum loan amount is 25% of the balance at the second financial year's end preceding the loan application year. If an account holder decides to take a loan at the earliest permissible time, their maximum borrowing capacity would be 25% of the amount as of March 2019.
• The interest rate applied is 2% higher than the interest earned on the remaining balance in the PPF account.

Eligibility For Loan Against PPF

As long as the PPF account remains open within the specified period, any regular account holder is qualified to apply for a loan against their PPF account. This opportunity is available during the third to sixth years of the account.

Benefits Of Taking a Loan Against PPF Account

Obtaining a loan against PPF offers several benefits, with some of the key advantages outlined below:   

• No collateral is required to secure this loan.
• The repayment period for this loan is up to thirty-six months, calculated from the 1st day of the month following the month in which the loan was sanctioned.
• One notable advantage of a PPF loan is the low interest rates. The interest rates on PPF loans are significantly lower compared to conventional personal loans from banks.
• Repayment of the loan principal can be made in a single lump sum or through two or more payments, which can be on a monthly basis.

How is Loan Against PPF Amount is Calculated?

The calculation of the loan amount available in a PPF account involves taking 25% of the balance from the second year immediately preceding the year when the PPF loan application is submitted. For example, if the PPF account balance is Rs. 1,00,000 as of March 31, 2021, the account holder can withdraw a maximum of Rs. 25,000 during the fiscal year 2022-2023.

Unlike traditional loans, the loan amount in a PPF account is not influenced by one's income or creditworthiness. The maximum borrowing limit is constrained to 25% of the PPF account balance at the end of the second financial year, just before the year during which your loan is taken.

Things To Know About Loan Against PPF

Below are some of the conditions that apply when opting for a loan against PPF:   

• If the loan amount is fully repaid, but a portion of the interest remains outstanding, it will be deducted from the PPF account.
• Eligibility for a second PPF loan against your PPF account arises only after the complete repayment of the first loan. Additionally, a specific loan amount is allocated for each year, and you can avail of it only once a year, even if the loan is repaid within the same year.
• Repayment is structured in a way that the principal amount must be settled first, followed by the interest amount, in two or fewer monthly installments.
• During the period of loan repayment, the balance in your PPF account will not accrue any interest income.

How To Apply for PPF Loan Online?

To know how to get loan against PPF account, an account holder should complete Form D, providing the account number and the desired loan amount, and sign the form. The PPF account passbook should be attached to the form and submitted to the bank or post authorities where the PPF account is maintained.

Conclusion

In essence, the key advantage of securing a loan against a PPF account is the remarkably low-interest rate. This loan type is unsecured, eliminating the need for collateral and simplifying the process. Furthermore, borrowers benefit from flexible repayment terms, making it an undoubtedly convenient option for PPF investors in need of swift access to funds during emergencies.