Is loan against PPF possible? How much loan can I avail against my PPF account? I am going through a financial emergency and don’t want to go for a personal loan, as the interests are high.
Financial emergency can happen to just about anyone and there is no harm in evaluating all your options before deciding the best way forward. Public provident fund is a financial scheme promoted by the government of India to help investors indulge in long term saving. You can go in for a premature withdrawal as well as opt for a loan against your PPF account depending on the amount of money you need.
On the downside however, since PPF is offered as a financial instrument that enables people to adopt long term savings, one is eligible to withdraw from the PPF account only from the 7th year onwards. Also there is a cap on the maximum amount you can partially withdraw from your PPF account. The maximum amount cannot exceed more than 50% of the balance in the PPF account at the end of the 4th year. Meanwhile loans on PPF accounts are eligible only for accounts between the 3rd financial years to the 6th financial year. The maximum amount of loan taken from a PFF account is fixed at 25% of the balance lying in one’s account at the end of the first financial year. The interest rate on the loan amount is 2% higher than the interest being given on the PPF balance.
Here are the rules for taking a loan against your PPF account.
• PPF account holders can only take a loan between the third and sixth financial year of opening the PPF account.
For example, if Mr. A opened a PPF account in January 2010,
• Year 1: April 2009 – March 2010 (Account opened within this timeframe – in January 2010).
• Year 2: April 2010 – March 2011.
• Year 3: April 2011 – March 2012. (Can take a loan starting from this year)
• Year 4: April 2012 – March 2013.
• Year 5: April 2013 – March 2014.
• Year 6: April 2014 – March 2015. (Can take a loan only up to this year, as next year will qualify for partial withdrawals)
• Year 7: April 2015 – April 2016 (Mr. A can begin withdrawing from his PPF account from this date).
Loan amount is capped at 25% of the balance at the end of the second financial year preceding the year in which the loan was applied for.
Considering the above example, if Mr. A wishes to take a loan as soon as he is legally allowed to do so, his maximum loan capacity will be 25% of the balance as on March 2010.
Loans must be repaid within 36 months of when they were taken. Any loan exceeding the 36 month repayment period will be charged interest at 6% more than the earning interest rate.
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