PPF Loan: Why get bogged down in the trap of taking a personal loan? When PPF is the cheapest way to get money?

Whenever we suddenly need money, we rush to personal loans with 12% to 18% interest rates. But did you know that your PPF account holds a 'credit card' that you can use in difficult times? The rules for taking a loan against PPF are so unique that if you miss the right window, you won't be able to avail of this affordable loan even if you want to. Loans against PPF are often calculated at 1% interest.

Question: 1. Only 1% interest: So, understand the math.
Answer: The interest rate on a PPF loan is directly linked to the interest earned on PPF.

According to the rule, you can get a loan at 1% more than the interest earned on PPF.

For example, if PPF is currently earning 7.1% interest, you can only get a loan at 8.1%.

In fact, you're earning 7.1% interest on your deposits, so you're only actually losing 1% extra. This can be considered much cheaper than a gold loan or personal loan from any bank.

So, the 'golden period' for a loan...when can you take out the money?
This is where most people miss the mark. You can never take out a loan against PPF.
However, there's a specific window for this.
The loan facility begins one year after the end of the account opening year.
The loan can only be taken out five years after the end of the account opening year.
For example, if you opened your account in 2024, you can only take out a loan between 2025 and 2030.
After this, you may not be eligible for a loan, but for a partial withdrawal.

Personal Loan vs. PPF Loan: A Comparison at a Glance
Features Personal Loan PPF Loan
Interest Rate 12% to 18% PPF Interest + 1% (e.g., 7.1% + 1% = 8.1%)
Processing Fee 1% to 3% No Fee

CIBIL Score Mandatory
Guarantee/Security Income and Credit Profile Deposits in Your Account
Repayment Period 1 to 5 years, Maximum 36 months

What is the unique method of repaying the 'principal' and 'interest'?
The method of repaying a PPF loan is also different from that of a typical loan.
You must first repay the principal amount of the loan.
You can repay it in installments or in a lump sum.
After the principal amount is repaid, the interest amount must be paid in a maximum of two installments.
If the loan is not repaid within 36 months, the interest rate will increase from 1% to 6% (plus a penalty).

How is PPF investment the best investment option?
PPF is considered one of the safest and most reliable investment options in India.
Its biggest advantage is that it falls under the E-E-E (Exempt-Exempt-Exempt) category.

This means that the entire investment, interest earned, and maturity amount are tax-free.

Its interest rate (currently 7.1%) may seem lower than that of mutual funds, but its stability and annual compounding make it a long-term winner.

After 15 years, you can extend it as many times as you wish in 5-year blocks.

Even if you stop investing after 15 years, your entire balance will continue to earn interest, and you can withdraw money once a year.

You can take a loan against your PPF balance between the third and sixth years of the account.
The interest rate is only 1% higher than the PPF interest rate.

From the seventh year onwards, you can withdraw a partial amount for your needs, which is completely tax-free.

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