PPF is a great saving instrument that helps in having a high interest earned over the invested amount apart from making the amount completely non taxable as and when it gets withdrawn. Apart from this, if you are looking at a loan, you can even opt for availing the loan against your PPF account.
Requirement for availing loan against the PPF account
As per the PPF Act, 1968, the account holder can:
Post 5 years of investment into the PPF account, since the partial withdrawal is permitted, the loan cannot be availed.
Applicable Interest Rates
The interest rate on PPF account is definitely lower than what gets charged on the personal loan. While the interest on personal loans can range from 14% to 20% or even higher, the interest charged on the loan against PPF will be 2% higher than the declared interest for the year. So if the government has declared an interest of 8.50% for the year, an interest of 10.50% will be levied. In the subsequent years the interest will get adjusted as per the interest declared by the government. So if the interest sees an increase by 10 basis points, so would the interest on the loan. In case of reduced interest being paid by government the charged interest will also get reduced commensurately.
Term of loan
The term of loan can be maximum of up to 30 months.
How much can be borrowed?
A maximum of 25% of the account balance can be taken as loan. Any amount higher than this will not be permitted since it defeats the purpose of investing into the account.
Can all PPF account holder avail the loan?
Yes, all account holders can apply for such a loan provided they have been investing without any break. The PPF account requires the investor to deposit a minimum of Rs 500 every year. In case even this amount has not been deposited then the loan cannot be applied.
How does one apply for this loan?
The loan can be applied through the post office or the bank where the account has been opened. One would be required to fill in Form D for such application.
How does one repay the loan?
This loan product is entirely different from any other form of loan.
Loan against PPF will be a good option for all, even for people with low CIBIL score but the fact remains that the account is opened to create a corpus with long term financial objectives and this very purpose may get defeated if the loan is availed.
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