So you can take advantage of cheaper loans on your PPF account
In addition to being a great way to invest, the Public Provident Fund (PPF) has many other benefits as well. In addition to the tax savings, one big benefit of investing in a PPF account is that you can get a loan for it. A loan against PPF is very useful in times of need as it is readily available.
Problems can approach at any time. In such a situation we are involved in the credit process to overcome the money shortage, but without a guarantee you cannot get a loan because you have to give something to the bank in return. However, in order to take out a loan against PPF, you do not have to pledge anything.
In addition, taking out a loan against PPF is cheaper and the interest rate is very low.
The loan can be taken out on PPF after one year from the end of the financial year in which you opened the account and before the end of 5 years. Remember that after completing 5 years of the PPF account, funds can be withdrawn from it. However, once you start paying off, you will not be able to take out a loan against PPF. At the end of the two years preceding the year in which you apply for the loan, up to 25% of the amount in the PPF account can be drawn on for the loan.
When taking out a loan against PPF, the principal amount of the loan must first be paid and then the interest must be paid. The principal can be repaid in two or more installments or monthly installments. Remember that the principal amount of the loan must be paid by the account holder within 36 months from the first day of the month the loan is taken out.
The effective interest rate on the loan is only 1% more than the interest on PPF. PPF currently receives 7.1% annual interest. That is, when you take out a loan, the interest rate on the loan is 8.1%. The interest can be paid in two EMIs or as a lump sum. If the principal has been paid on time but part of the interest is due, it will be deducted from your PPF account.
If the loan is not repaid or only partially repaid within 36 months, the remaining loan amount bears interest at 6% pa. This 6% interest applies from the first day of the next month in which the loan is taken out to the last day of the month in which the last installment is paid. That is, if the loan is not repaid within 36 months, the interest rate, which was 1 percent previously, will be 6 percent.
The interest on the outstanding loan will be deducted from the account holder’s account at the end of each year if the interest is not paid before the 36 months. If the account holder dies, their agent or legal heir pays the interest on their loan. If your PPF account is not active, you will not be able to take out a loan. Apart from that, no second loan can be taken out until the first loan against PPF has been repaid.