The effective interest rate for the loan is only 1% more than the interest on PPF.
Public Provident Fund (PPF) is not only a great way to invest, but it also has many other benefits. Along with saving tax, a major advantage of investing in a PPF account is that you can take a loan against it. A loan against PPF is very useful in times of need as it is easily available.
Trouble can approach at any time. In such a situation, to overcome the shortage of money, we get involved in the loan process, but you cannot get any loan without a guarantee as in return, you have to give something to the bank. However, to take a loan against PPF, you do not need to pledge anything.
Also, taking a loan against PPF is also cheaper and its interest rate is very low.
The loan can be taken on PPF after the completion of one year from the end of the financial year in which you opened the account and before the completion of 5 years. Remember that after the completion of 5 years of the PPF account, money can be withdrawn from it. But once you have started the withdrawal, you cannot take a loan against PPF. At the end of the two years preceding the year in which you are applying for the loan, up to 25% of the amount in the PPF account can be availed for the loan.
On taking a loan against PPF, the principal amount of the loan has to be paid first and its interest is paid later. The principal amount can be repaid in two or more installments or monthly installments. Remember, the principal amount of the loan has to be paid by the account holder till the end of 36 months from the first day of the month in which the loan is taken.
The effective interest rate for the loan is only 1% more than the interest on PPF. PPF is currently getting 7.1% annual interest. That is, if you take a loan, then the interest rate of the loan will be 8.1%. The interest can be paid in two EMIs or lump sum. If the principal amount has been paid on time, but some part of the interest is due, then it is deducted from your PPF account.
If the loan is not repaid or only partially repaid within a period of 36 months, the remaining loan amount will attract interest at the rate of 6% per annum. This 6% interest will be from the first day of the next month in which the loan is taken, till the last day of the month in which the last installment will be paid. That is, if the loan is not repaid within 36 months, the interest rate that was earlier becoming 1 percent will become 6 percent.
Interest on the outstanding loan will be deducted from the account holder's account at the end of every year if the interest is not paid before the end of the period of 36 months. If the account holder dies, then his nominee or legal heir will pay the interest on his loan. If your PPF account is not active then you cannot take loan against it. Apart from this, till the first loan taken against PPF is not repaid, second loan cannot be taken on it.
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