How to get a loan against PPF account

Public Provident Fund is one of the most popular long-term savings options. One such best feature of such an account is that it allows account holders to take a loan against the balance in their PPF account. This facility is very beneficial for individuals who want to apply for short-term loans without pledging any asset as collateral. The interest rate offered on the loan is also relatively cheaper than the other financing options.

Key features of taking loans against a PPF account

  • All subscribers of PPF are eligible for taking such loans.
  • The loan can be taken from the third financial year and till the sixth financial year after opening the PPF account. 
  • If the account is in the name of the minor, in that case, the guardian may apply for the loan on their behalf.
  • The loan amount is capped at 25% of the balance at the end of the second financial year or preceding the year in which the loan was applied.
  • Accountholders need to repay the loan amount within 36 months of availing it. The repayment can be done through a lumpsum payment or two monthly installments.
  • If the principal is repaid within the loan tenure, but the portion of the interest amount is remaining to be paid, then the outstanding amount will be deducted from the PPF account balance of the individual.
  • Individuals cannot take a loan from the seventh year of opening the PPF account. The funds can only be partially withdrawn after that.
  • It is not possible to avail of a second loan on the PPF account until the first one has been paid-off completely.

Advantages of taking a loan against PPF account

  • No requirement of any collateral- You will not be required to pledge any asset in the form of collateral while taking a loan against your PPF account.
  • Low rates of interest- This is one of the most significant benefits of availing a loan against your PPF account. Interest rates are offered on such loans are comparatively cheaper than other loan options.
  • Flexibility in repayment - The repayment of the principal amount of the loan can be done either in two or more installments (monthly) or as a lump sum.

Should you take a loan against PPF? 

PPF is a long-term investment that most people do for their comfortable retirement. Therefore, it would not be a smart move to liquidate your long-term investments to cater to short-term cash requirements. Since PPF provides tax-free and risk-free returns which beat inflation and hence one must look at other alternatives for their financial needs. However, if you do not have any other option you may go for it as the rate of interest is considerably lower.