Anyone can suddenly need money. At such times, often the first thought that comes to mind is personal loan or credit card of the bank. But the interest rates in both these options are very high, which later becomes a huge financial burden. In such a situation, if you invest in Public Provident Fund (PPF) account, then you have a very cheap option. The loan available on PPF account is not only much cheaper than other unsecured loans in the market, but there is also no need to visit banks or give any kind of heavy guarantee. Let us understand what is the complete mathematics of taking advantage of this cheap loan.
When can one get loan from PPF?
PPF is a long-term investment whose maturity is 15 years, but you can never take a loan during this entire period. According to the rules laid down by EPFO, a special window opens for this. This facility can be availed only from the beginning of the third financial year till the end of the sixth financial year after the year of account opening. Let us understand this with an example, if you have started your PPF account in the financial year 2023-24, then you will be able to apply for the loan only between 2025-26 to 2028-29. After this this window closes, after which investors become entitled to partial withdrawal.
The limit will decide the amount deposited in the account
When it comes to loan, it is important to know how much amount you can get. This limit is not strictly determined by the current balance of your account. The rule says that you can take a maximum of 25 per cent of the balance in your account at the end of the financial year immediately preceding two years in which you are applying, as a loan. Due to this technical rule, sometimes the approved loan amount may be slightly less than your current expectation.
The strongest alternative to expensive personal loan
Loan against PPF proves to be very economical compared to any credit card or personal loan. The biggest reason for this is that you are taking money in exchange for your own savings. The interest rate charged on this is directly linked to the interest rate available on the PPF account, due to which it remains much below the general market rates. Additionally, you also get complete relief from lengthy paperwork and complicated processes like credit score checking.
There is a grace period of 36 months for repayment
This loan is not designed for long term but to meet your emergency needs. You are given 36 months time to repay your principal amount from the first day of the next month after the loan is sanctioned. You have to pay interest only after the principal amount is fully repaid. If you do not return the money within the stipulated time limit, you may also be charged a higher penalty rate. Another important condition is that you cannot apply for a second loan until you have completely repaid your first loan.
Disclaimer: This article is for information only and should not be considered as investment advice in any way. TV9 Bharatvarsha advises its readers and viewers to consult their financial advisors before taking any money-related decisions.
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