The festive season often leads to a spending spree, disrupting many people's budgets. To cover these financial needs, people usually end up taking loans. Personal loans are the most common choice in such circumstances, as they require very few documents and are approved by banks quickly and easily. However, their convenience comes with a catch - high interest rates. For those with urgent needs looking for a cheaper alternative, a loan against Public Provident Fund (PPF) deposits can be an option. If you're investing in PPF, you can use this lesser-known financing source.
Cheaper to take a loan against PPF deposits
A PPF loan allows you to borrow up to 25 per cent of your account balance. The interest rate is typically only 1-2 per cent higher than the PPF rate of 7.1 per cent.
PPF Loan: Key things to know
- You can only get one loan in one financial year.
- You will not get a second loan unless you repay the first one.
- You need to repay the principal amount before your repayment term expires.
- Once the principal amount is fully paid, you must repay the interest in no more than two monthly instalments.
- If you cannot repay the loan as stipulated, the lender can deduct the equivalent amount from your PPF balance.
- If the account holder dies, the account holder’s nominee or legal heir must repay the loan.
Personal Loan
Banks readily offer personal loans. However, they charge a hefty interest rate, ranging from 10 per cent to 24 per cent. NBFCs charge even higher interest rates.
If you want a safe and low-interest loan and your PPF account is old, a PPF loan can be a good option. A personal loan is the right option if there is an urgent need and you do not have a PPF account. Both PPF loan and personal loan have their own advantages. Take a decision only after understanding the need, time and interest rate.
