A person’s lifecycle is very typical. People work hard all their life to save money for their retirement. Most people in India belong to the middle and lower economic classes. These people work hard all their life to fulfill their family’s basic needs likeeducation, marriage, home, food, etc. Many investment options are available today, but these people trust only government-based services. Hence, most people in India rely on government investment schemes like PPF.
![A Quick guide to taking a loan against PPF]()
PPF stands for Public Provident Fund, where all people working for the government or in private companies can open an account and add their savings for future retirement planning. The government also allows for easy withdrawals and loan reimbursement facilities with the PPF account.
In this blog, you will learn about the loan facility against PPF.
What is PPF?
The Public Provident Fund (PPF) is an investment option for most working people in India. It is a long-term savings scheme for people with a lower risk appetite. It is a government-aided investment scheme suitable for people belonging to lower and middle-class economic strata.
The National Savings Institute of India (NSII), under the Department of Economic Affairs of the Ministry of Finance, manages PPF saving schemes in India. The NSII also promotes and regulates compliance with the PPF accounts.
The PPF allows you to earn tax-free annual interest. The Indian federal government fixes the interest rates yearly on your investment, and it doesn’t depend on the market. It is one of the most feasible investment schemes laid down by the government for ordinary people in India.
What is the importance of taking a loan against PPF?
PPF is a government-based scheme that ensures risk-free and trustworthy investment options for most people. If you have a PPF account, you can easily avail of a loan against your account with a nominal interest rate. The people opting for PPF loans in India belong to middle and lower economic strata; hence the requirement and need for money during family emergencies or mishaps is inevitable. The PPF account allows for easy withdrawals ensuring complete accessibility. Hence, PPF is a very smooth investment option for most Indians, and the loan facility is feasible for most customers.
Salient Features of taking a loan against PPF
The salient features of taking a loan against your PPF account are:
● If you have a PPF account, you can easily avail of a loan against your PPF savings without hassle.
● You can avail of off loan facility against your PPF account between the third and sixth financial year of opening a PPF account. For example, if you opened your PPF account during the financial year 2018-19, then a loan can be availed from 1 April 2020, which is the beginning of the financial year 2020-21. The loan can be taken till the end of the financial year 2023-2024.
● You can withdraw partially from your PPF account from the 7th financial year.
● The loan amount is capped at 25% of the balance at the end of the second financial year
● The loan amount is capped at 25% of the balance at the end of the second financial year preceding the year in which the loan you applied. Considering the above example, if you want to take a loan when you’re legally eligible, your maximum loan capacity will be 25% of the balance as on March 2019.
● The interest rate of your loan against PPF is 1% more than the interest earned on balance in the PPF account. The interest rate on your loan against PPF will change proportionally if there is any update on the interest rate of your PPF account.
● If the interest rate is set for your loan against PPF at the beginning of the financial year, it will remain the same for the whole financial year.
● If you fail to clear your loan against PPF account within 36 months, the yearly interest rate hike will be 6% more than the interest earned on the PPF balance, unlike the standard additional 1% interest rate.
● If you repay the principal amount of your loan against PPF within the loan tenure but you fail to pay the interest amount of your loan, there will be a deduction of the outstanding amount from your PPF account balance.
● You cannot avail of a second loan against your PPF account unless you clear the first one completely.
● You must pay the principal amount first, followed by the interest amount.
● It is mandatory to pay your interest amount in less than two monthly installments.
Eligibility Criteria for taking a loan against PPF
Of Course, the first eligibility criterion to avail of a loan against your PPF Account is to open a PPF account. However, you will also need the following documents to begin the process:
● ID proof
● Address proof
● Photograph of the account holder
● Nomination form.
You can avail of a loan against PPF from the 3rd financial year up to the 6th year of your PPF account opening. You can only avail of short-term loans with the loan tenure being 36 months.
Benefits of taking a loan against PPF
Some of the significant advantages of taking a loan against PPF are:
● It is a short-term loan option; hence you can quickly repay them.
● You can easily avail of loans against your PPF account for immediate emergencies.
● You do not require any collateral or pledge any of your assets to avail of a loan, unlike other loan categories.
● The loans against your PPF account have sufficient tenure of 36 months which is very feasible for most people.
● The interest rates for loans against your PPF account are very low compared to other personal loans.
● They provide a flexible repayment schedule where you can repay your principal loan amount in any number of installments or as a lump sum.
● It is a very trustworthy loan option as it is government aided.
● It is the most easily accessible loan option for most people in India.
● The loan facility against your PPF account provides easy withdrawal options.
How to take a loan against PPF?
The first step to avail of a loan against PPF is to create a PPF account. The following steps will guide you through the PPF account opening process:
● Firstly, you must gather all the below-mentioned documents and submit them to your bank to proceed with the opening of your PPF account:
○ You must submit proof of identity like a Voter ID card, PAN card, or Aadhaar Card.
○ You must submit your address proof, like an Electricity bill or water bill, or piped gas bill.
○ You must also submit your passport-size photographs.
○ You must submit your Nomination Form, which you can get from your bank or post office.
○ You must also submit a Pay-in-slip, which you can get from your bank or post office.
Steps to open a PPF Account Offline:
You can easily open your PPF account at your bank or the Indian Post Office by following the below steps:
● It would be best if you gathered a PPF account opening application form from the city post office or sub-post office, or your bank.
● You must fill the application form with personal details such as your name, phone number, residence, etc., and other details asked in the form.
● You must now submit the application form along with KYC documents and passport-sized photographs.
● You have to begin your PPF account investment by paying a minimum sum of INR 500 while opening your PPF account.
● The post office will give you a passbook for your PPF account.
● The passbook will contain important details such as your PPF account number, PPF account balance, transactions done via your PPF account, and many more related details for your reference.
Steps to open a PPF Account Online:
You can easily open a PPF account online with your bank. However, you must enquire first whether your bank provides the facility of a PPF account or not. Most banks in India provide the PPF account facility to their customers. You must fulfill the following prerequisites before opening a PPF account with any bank online:
● You must have a savings account in your bank.
● You must enable net banking and mobile banking facilities.
● Your Aadhaar number should be linked with your bank.
● You should have an active mobile number linked with your aadhaar card and your bank account.
The following steps will guide you with the online PPF account opening via the Net banking facility of your bank:
● Firstly, you must sign in to your bank’s NetBanking account by entering the appropriate credentials.
● You will find an Offers Tab as you proceed.
● You must click on the ‘Public Provident Fund’ option.
● You must enter all the required details and confirm them by pressing the Ok button.
● You must enter the amount you want to deposit to open your PPF account.
● You can also choose to add a nominee.
● You must click on the submit option finally.
● You will receive a text message saying your account will be opened in one working day.
● You can directly transfer the funds from your savings account to your PPF account online without hassle.
Money is a very crucial thing for survival. The need for money is inevitable. Life is unpredictable; hence the requirement for money is always there. The loan facility against PPF is very feasible for most people in India. Since our population majorly belongs to the lower and middle economic strata, they highly rely on loans against their PPF accounts. Hence, it is one of the best loan facilities by the Government of India.
Frequently Asked Questions
1. What is the loan tenure if I avail of a loan against my PPF savings?
● The loans against PPF accounts are usually short-term loans. The tenure for these loans is not more than 36 months. You must clear the loan within the tenure to avoid extra interest rates.
2. Will my interest rate on the loan against my PPF account increase if I fail to repay within the tenure?
● If you fail to repay the loan raised against your PPF account, you will have to bear an extra 6% hike on your interest rate, unlike the traditional 1% hike each year.
3. How is the loan repayment schedule with the PPF account?
● They offer a very flexible loan repayment schedule. You can opt for monthly installments or two or many installments. They also accept lump sum loan repayments. The repayment schedule is easy and flexible.
4. Can everyone avail of loans against PPF accounts?
● Yes, all PPF account holders can avail of loans against their PPF account from the third to the sixth financial year. However, if you do not have a PPF account, you can easily create one and avail of loans.
5. Can we open a PPF account online at the Post Office?
● The Indian Post Office website does not allow customers to open a PPF account online. However, you can gather all the required documents and apply to open a PPF account offline at your nearby post office. The process is extremely smooth.
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