The Public Provident Fund (PPF) scheme is a fixed-income investment scheme which is available for investment for the general public. The scheme allows you to save regularly over a long-term period and create a guaranteed corpus.
Moreover, if you are in need of urgent funds, you can avail a loan against PPF account at low-interest rates. However, before we discuss the loan against PPF, let’s have a look into the PPF scheme –
Here are some of the salient features of the Public Provident Fund Scheme
PPF is a long-term investment scheme and sometimes you might need funds for financial needs. PPF allows partial withdrawals if you need funds for your needs. However, such withdrawals are allowed after the completion of six years of investment into the account. If you need funds before this period, you can resort to a loan against PPF.
The facility of loan against PPF is available if you need funds before completing six years of investment. You can get a loan against a PPF account between the third and the fifth year of opening the account. This loan can be taken for up to 25% of the balance in the PPF account two years before which the loan application is made.
For example, if you open a PPF account in 2019-20 and apply for a loan in 2024-25, you would be able to avail yourself of 25% of the PPF account balance in the year 2022-23. Moreover, if you repay this loan fully, you can avail of a second loan too before the sixth year of opening the PPF Account.
The loan that you avail of would carry an interest expense. The loan against PPF interest rate is 1%. Earlier this rate was 2% but then the rate was lowered to 1%. Interest would be calculated on the loan amount for the duration of the first day of the month in which the loan is taken to the last day of the month in which the loan is repaid.
For example, if you take a loan against PPF account on 20th June 2020 and repay it on 12th October 2020, the loan against PPF interest rate of 1% would be charged from 1st June 2020 to 31st October 2020.
Besides the loan against PPF interest rate, here are other aspects of the loan which you should know –
So, though a PPF account allows a loan, you should know the details of the same before you avail of the loan.
Though loan against PPF account has a very low-interest rate compared to other loan options available in the market, many financial experts believe that loan against PPF should be avoided. Given below are some of the reasons why –
Given these reasons, a loan against PPF should be avoided but if you are in need of funds at a low-interest rate, you can opt for the facility. A loan against a PPF account is cheaper than a personal loan and easily allows funds for your emergencies. So, understand the terms and conditions associated with the loan and then avail it if needed.