EPFO: What is PPF loan? Is it better than personal loan? Know its interest rate and rules

PPF Loan: If you suddenly need money in times of trouble and want to break your investment policy to fulfil your monetary requirements, you can also find an alternative in a PPF loan. The PFF loan comes at a much cheaper rate than a personal loan.
 
If you invest in the Public Provident Fund (PPF), other than getting interest on it, you also get many other benefits, and one of the benefits is the loan against the PPF.

However, there are some rules regarding the PPF loan that you need to know before extending your loan application. In this write-up, we will let you know about those rules.

Lower interest rate than personal loan

The good thing about a PPF loan is that you do not need to mortgage anything for it since it is given on the basis of the amount deposited in your PPF account.

As per the rules, the interest on the PPF loan is one percent more than the interest on the PPF account.

It means that if you are getting an interest rate return of 7.1 per cent on your PPF account, you have to pay an interest rate of 8.1 per cent on your PPF loan.

Compared to the PPF loan, the interest rate of a personal loan can range from 10.50 per cent to 17 or 18 per cent.

Loan duration

This is another important factor to know about the PPF loan. After taking the loan, you are given three years, i.e., 36 installments, to repay it.

However, you can repay the loan in a smaller number of installments.

First of all, you have to pay the principal amount of the loan.

Later, the interest is calculated according to the payment period.

Apart from this, if you get a lump sum amount from somewhere in between, you can repay it by paying the amount in one go.

But if you are not able to repay the loan within 36 months, then, as a penalty, you will have to repay the loan at a rate of 6 per cent more than the interest on your PPF amount.

Loan Terms

You can apply for a PPF loan only if your PPF account is one financial year old.

After the completion of five years of the PPF account, the loan facility is not available on it because, after this, you can withdraw the PPF amount partially.

You can take only 25 per cent of the amount available in the PPF account as a loan.

You can take a loan against your PPF account only once.

Even if you have repaid the earlier loan, you still do not get the facility of a re-loan on this account.

How to apply for loan

You can apply for a bank loan at the bank of your PPF account.

If your PPF account is in State Bank of India, you can fill Form D for it.

In the form, you have to write the loan amount and the period for repayment.

If you have taken any loan before this, you need to mention it on the form.

After this, the PPF passbook will have to be submitted.

After all the formalities are complete, the bank takes about a week to disburse the loan.