Loan Against PPF For Urgent Needs – Know Everything About It

Wait! Need an urgent loan but have nothing to mortgage?

Then loan against PPF can be a best option for you in case of emergency fund requirement.

Life is very uncertain and an emergency can occur at any time hence, knowing and planning for it in advance is very necessary.

That’s why today I will be going to discuss that in such situation how you can use your PPF account to avail the loan, what are the requirements for it, what are its benefits, etc.

But before that let’s quickly recap what is a PPF

So let’s get started!

Public Provident Fund (PPF)

Public Provident Fund or PPF is a government backed long term savings scheme to promote the habit of savings of every citizen and even plan for retirement.

Unlike National Pension System (NPS), PPF is 100% safe investment instrument being backed by government of India.

Here you have to invest the money every year for minimum upto 15 years and government gives anywhere between 7-9% interest on your investment that keeps compounding annually and finally at maturity you can withdraw this amount.

The best part of PPF is that it comes under EEE Category that means your investment or contribution in PPF is tax exempted under 80c, the interest you will earn on it is also tax exempted, and finally the maturity amount is also 100% tax free.

Hence, the net effective return become high then what you get on your PPF every year.

Now you have an idea what is PPF, let’s take a look on PPF loan.

Loan Against PPF

PPF is not only a long term savings scheme but in the situation of emergency you can use it as a collateral to avail the loan against your PPF account.

For taking PPF loan you don’t have to break or close your PPF account, it remains intact while you take a loan against it.

But one thing you may be thinking right now that why not I use my PPF money instead of taking a loan against it.

Well, a great question but you can’t do a premature withdrawal before the start of your 7th year or after completing 6 years of regular investment in PPF.

Hence, in between if you are in need of some urgent fund then taking a loan against PPF make sense.

But there are certain conditions for taking loan on ppf account, let’s check them out:-

Conditions To Take Loan On PPF Account

1. You can only take the loan between the start of 3rd year to 6th year of your investment in PPF from the day of opening your PPF account, before that you can’t take a PPF loan.
2. You can take the loan of only 25% of amount of PPF amount at the end of proceeding two years.

Benefits of Taking Loan Against PPF

The biggest benefit why you should take a PPF loan is that you using your Public Provident Fund account you can avail the loan at cheapest rate.

Generally, the rate of on which you avail the loan is just 1% higher then the interest you are earning on your PPF investments.

For example if the current PPF interest rate is 7.1% then you can avail the loan on just 1% higher to this interest rate that is at 8.1%.

With that, the another advantage of taking loan on PPF account is that there is no hidden fees like the banks or NBFC charges you in the form of processing fees.

Example of PPF Loan

To better understand the conditions of taking loan against PPF, let’s understand this by the example.

Let’s say you have opened a PPF account on 1st January 2020, and every year you are depositing Rs. 1.5 Lakh in your PPF Account.

Now let’s assume you are in urgent need of some fund hence, you thought to take a PPF loan.

Loan Eligibility

In such case, let’s see whether you are eligible to take the loan or not and of how much amount.

So, as you have opened the account on 1st January 2020, so as per that the first year will be 1st January 2021, Second year 1st January 2022, and third year start from 1st January 2023.

Today it is 6th October 2024, hence you are eligible for the loan.

Loan Amount

To know upto how much loan amount you can avail so for that you have to check the PPF amount of at the end of preceding two year from today.

So the preceding two years means the year 2022-23 as per today.

Now because you are investing Rs. 1.5 Lakh every year so let’s calculate you PPF amount without considering interest earned on it for this example only.

Year	Amount At The Starting of Year
1st January 2021	Rs. 1,50,000
1st January 2022	Rs. 3,00,000

So on 1st January 2022, you had Rs. 3,00,000 in your PPF account.

Hence, you can take the loan upto 25% of Rs. 3,00,000 that is upto Rs. 75,000.

Factors To Consider Before Taking Loan Against PPF

Here are some factors you should consider before taking loan against PPF:-

1. The total tenure of PPF loan is 36 month or 3 year, hence you have to repay all the loan amount you have taken with in this period.
2. You can repay the loan in instalment or can do a lumpsum payment also to close your PPF Loan account.
3. In any case if you are unable to repay your loan in the given timeline then you have to pay the delayed interest which is equal to PPF loan interest rate + 6% Per anum delayed interest as a penalty.
4. Until you repay the loan, no interest or return will going to be paid on your PPF investment.
5. If you take a loan on PPF, then not only you stop earning the interest on your PPF investment but also have to pay 1% extra as the loan interest rate that is offered to you.
6. Failure to repay the loan on time can lead to deductions from your PPF balance, impacting your long-term savings.

When Should You Consider a Loan Against PPF?

A loan against PPF is ideal when you have some urgent financial need but do not want to liquidate your investments. Some scenarios include:

• Medical emergencies
• Education expenses
• Home renovation or repairs
• Short-term liquidity needs

Else many financial experts always advice to avoid taking loan against PPF because it eventually affect your long terms savings corpus.

Frequently Asked Questions

Final Words – Loan on PPF Account

That’s all!

Taking a loan on PPF can look very fascinating to you but it has got some disadvantages too as mentioned above.

Thus, be careful while taking PPF loan and only avail this loan facility when you are stuck in some emergency situation and have no other option.

Else, this can have a huge impact on your retirement saving in PPF.

Disclaimer: The Honest American provides financial education, investing strategies, & stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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