PPF (Public Provident Fund) is a fixed investment scheme that allows people to save and earn a guaranteed corpus after a fixed period of time. In case of urgent need of funds, one can also avail a PPF loan. Notably, loans against PPF accounts are beneficial for those who need short-term loans but not against any of their assets. Read this blog to learn about how to get a loan against PPF account.
How to get a PPF loan?
PPF investors may need funds in case of emergencies, however, withdrawals are allowed only after six years of the investment period. If funds are required before this period, an investor can apply for a loan against PPF account.
To get a PPF loan, you must collect Form D from your nearest post office or home branch. The account holder applying for the loan must fill in the form and submit it at the post office where the PPF account is held.
While filling in the form, the account holder has to provide details such as the PPF account number and the loan amount that he/she has applied for, copy of the passbook and a statement claiming that the full loan amount with the interest will be repaid within 3 years.
Who can Get a Loan Against PPF?
PPF account holders are eligible to get a loan against their PPF accounts. This loan facility is only available from the third to fifth year of their account opening. This is a short-term loan for a period of 36 months and must be repaid within the due time period.
Key Points to Note about a PPF Loan
All PPF account holders who are willing to take a PPF loan, must remember the following:
- The loan is provided for a maximum of 25% of the PPF account balance at the end of the second financial year. For example, if your PPF account was opened in 2019-20 and you apply for a loan in 2024-25, then you can avail 25% of the PPF account balance as of the year 2022-23 as a loan. It is also important to remember that investors who will pay off the total loan amount, can avail a second loan before the sixth year of PPF account opening.
- The interest is calculated on the PPF loan amount starting from the first day of the month when the loan is taken up to the last day of the month during which the loan is repaid. The PPF loan interest rate is 1% more than the government-set interest rate for the PPF account. For example, if PPF account interest rate is 7.1%, then you will get a loan at 8.1% interest rate. So, the interest rate varies if there is an update in the interest rate of PPF account. However, the interest rate once set for a loan, will be the same till the tenure is over.
Things to Remember after Taking a Loan Against PPF Account
Listed below are some of the conditions that apply when you choose to take a PPF loan. Listed below are those:
- If the loan amount is paid off, but a part of the interest amount is left, then it will be deducted from the PPF account.
- It is only after the complete payment of the first loan that you will be eligible for the second PPF loan against your PPF account. Moreover, a specific loan amount is fixed for each year and can be taken only once a year, even if the loan is paid off in the same year.
- The principal amount must be paid off first, then the interest amount, in two or fewer monthly installments.
- Until loan repayment, your PPF account balance will not earn any interest income.
What are the Benefits of Taking a PPF loan?
If you have a PPF account and need a loan, then here are some of its key benefits you should note:
- You will not have to mortgage any asset while taking a PPF loan.
- The loan must be repaid within 36 months, which is a sufficient time period
- The PPF loan interest rate is lower than any other personal loan offered by banks.
- The interest on the loan amount can be paid in one or two installments.
The biggest advantage of taking a loan against PPF account is the low rate of interest. Taking a PPF loan does not involve any collateral and the procedure is hassle-free. Investors will also get the benefit of flexible loan repayment. Indisputably, it helps PPF investors arrange funds easily during an emergency.