Public Provident Fund (PPF) is one of the most popular tax saving options and an investment tool to accumulate money for retirement. However, with the lock-in of 15-years, investors often consider the scheme as a drawback.
What are the basic requirements to take a loan?
You cannot take a loan immediately. You can take money only between the 3rd and the 6th financial year. This means there is a virtual lock-in the the initial years. You can also take a second loan, but, you have to now ensure that you have paid the first one and the criteria between 3rd and 6th financial year would continue to apply.
What is the loan amount and the interest rate?
If you are applying for a loan in the 5th financial year, you could get as much as 25 per cent of the balance lying as at the end of the third year. Similarly, if you are applying for a PPF loan after the 6th financial year, it would be 25 per cent of the balance that would be available as at the end of the 4th year.
The rate of interest charged is 2 per cent over and above what is being given in the PPF account. For example, at the moment the rate of interest is 8.7 per cent, while you can avail of loans at 10.7 per cent.
What is the process of applying for PPF Loan?
The process of applying for a loan from PPF is not too difficult. You need to make an application at the nearest office, where you hold a PPF account. For example, it could be the post office, and you can write to the headmaster in this case.
We wish to reiterate that you must payback the amount on time, if you have avialed a PPF Loan. In case there is a delay there could be an increased amount of interest that would be made payable. For example, the interest rate could go as high as 6 per cent over and above the rate offered by the authorities on the balance. This is very steep and hence timely payment of principal and interest is advised.
Why to take loan from PPF Account?
Firstly, unless there is a dire emergency, we do not advise you to touch your PPF Account. This is because interest on this is tax free. Also, it helps to build a corpus for the individual for his retirement. In any case, if you have to avail, it is a better proposition than taKing a person loan or meeting an emergency with a credit card.
For example, a credit card, could cost you interest rate of 26-40 per cent, which is very steep. On the other hand personal loans come with interest rates of around 12-18 per cent. This too is very steep. Make sure that you comply with the requirements listed above, before you apply.