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All about Loan against PPF

You can take out a loan against your PPF deposit, from the beginning of the third to the sixth financial year of having opened the account.

Updated:March 6, 2019, 12:59 PM IST
All about Loan against PPF
Representational Image.

A Public Provident Fund (PPF) is one of the better and safer investment avenues, considering it enjoys an EEE status along with offering attractive returns. EEE, in other words, means that the deposits made, interest earned and maturity amount, are all exempted from tax. However, PPF entails a 15-year lock-in period, prior to which, complete withdrawal of money isn’t a possibility. That being said, you can even start making premature withdrawals from the beginning of the seventh financial year.

Moreover, you can also avail a loan against your PPF deposit and use it to get an instant flush of liquidity. Here is all you need to know about it:

When can you take out the loan?

You can take out a loan against your PPF deposit, from the beginning of the third to the sixth financial year of having opened the account. For instance, if you opened the account in 2010-11, you will be eligible for a loan, starting 2013-14 to 2016-17 post which, it would be considered as partial withdrawal.

How much can you withdraw?

The amount for your perusal is capped at 25 percent of the balance available in your account, exactly two years prior to the year in which you applied for the loan. For instance, should you apply for a loan during the financial year 2019-20, the amount would be capped at 25% of the account balance, available at the end of 2017-18.

What will be the interest charged on the loan?

The interest rate charged on the loan amount would be 2% more than the prevailing rate of interest that is set by the government (or the rate that you get on your PPF deposit). Keep in mind that interest rates on PPF deposits are modified every quarter. However, once the interest rate on the loan amount is fixed, the same would continue over the entire repayment period.

What will be the tenure?

The loan amount is scheduled for repayment within a maximum of 36 months, either in installments or lump sum. This tenure is calculated from the first day of the month, succeeding the month in which the loan amount was approved and sanctioned. For instance, if the loan amount is sanctioned anytime in July, the tenure will be calculated from 1st August.

What about repayment?

The repayment of principal can either be in lump sum or two (or more than 2) monthly installments. Once you’ve repaid the principal amount, you would have to pay off the interest in not more than two monthly installments. While the principal is credited to your PPF account, the interest gets reverted to the Government.

Remember that only when you’ve repaid the debt in full, do you qualify for another loan.

What if you default?

Should you default and not be able to pay off the debt, in full, within the 36-month tenure, the interest rate on the loan would be 6%, instead of the erstwhile 2%. This modified rate would apply from the date the loan was approved and sanctioned till the date of repayment.

Considering you’ve paid off the principal but the interest (or at least a part of it) is still due, the amount would be debited from your PPF account should it remain unpaid over the entire loan tenure.

To know more, click here.

This content has been created in association with YONO SBI.

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