How to Avail Loan Against Your PPF Account

Public Provident Fund (PPF) is a long-term investment with a tenure of 15 years that gives the investor a fixed income that is risk-free and tax-free. The account can be opened with a minimum balance of Rs.500 to a maximum deposit of Rs.1, 50,000 per year. It inculcates the habit of saving and planning for long-term goals. It also has a provision for availing loan against the PPF account investment for the short-term needs of the investor.

What is PPF Loan?

PPF account has a tenure of 15 years. Since an account holder could have financial emergencies, a lock-in period of 15 years may not be viable for all.

At any time after the expiry of one year from the end of the year in which the initial subscription was made but before expiry of five years from the end of the year in which the initial subscription was made, the account holder may, apply in specified Form, to the accounts office for obtaining a loan consisting of a sum of whole rupees not exceeding twenty-five per cent of the amount that stood to his credit at the end of the second year immediately preceding the year in which the loan is applied for.

Key Features of Loan against PPF Account

• All regular PPF account holders are eligible for the loan.
• Loan can be availed at any time after the expiry of one year from the end of the year in which the initial subscription was made but before expiry of five years from the end of the year in which the initial subscription was made.
• The amount of loan cannot exceed twenty-five per cent of the amount that stood to his credit at the end of the second year immediately preceding the year in which the loan is applied for.
• A second loan cannot be availed until the full repayment of the previous loan.
• Only one loan in a year will be sanctioned. So even if the account holder repays the loan in the same year, a second loan cannot be availed.
• After the principal amount of the loan is fully repaid, the account holder shall pay interest thereon in not more than two monthly instalments at the rate of one per cent per annum of the principal. Where the loan is not repaid, or is repaid only in part, within a period of thirty-six months, interest on the amount of loan outstanding shall be charged at six per cent per annum.

Benefits of Taking A Loan against PPF Account

• PPF loan is a personal loan hence there is no requirement to pledge any asset as collateral.
• Repayment on loans taken on PPF account is flexible. The repayment can be done in instalments or lump sum.
• The tenure of the loan is 36 months and hence the account holder has sufficient time to repay.
• With an interest rate of 1% per annum, a PPF loan is very attractive to account holders as the rate is competitive.

What is the PPF Loan Eligibility?

All regular PPF account holders are eligible for the PPF loan provided their account falls within the specified time period. This specified period falls between the third and sixth year of the account.

How is PPF Loan Amount Calculated?

The loan amount is 25% of the PPF account balance in the second year immediately preceding the year the loan is taken. So, if the balance in the account as on 31st March 2021 is Rs.1,00,000 the account holder can withdraw Rs. 25,000 only in the FY 2022-2023.

The loan amount under PPF is not calculated based on one's income or creditworthiness like a traditional loan. The maximum amount one can take as a loan is 25% of the balance in a PPF account at the end of the second financial year immediately preceding the year in which the loan is being taken. For example, if someone is taking a loan in the financial year 2022-23, then the maximum amount he/she can take as a loan is 25% of the balance in their PPF account as on March 31, 2021. One can repay the loan in a maximum of 36 monthly instalments. The interest rate on the loan is 1% higher than the interest rate earned on a PPF account.

What is the PPF Loan Repayment Period?

• The principal amount of a loan shall be repaid by the account holder before the expiry of thirty-six months from the first day of the month following the month in which the loan is sanctioned:
  Provided that the repayment may be made either in one lump sum or in instalments.
• After the principal amount of the loan is fully repaid, the account holder shall pay interest thereon in not more than two monthly instalments at the rate of one per cent. per annum of the principal for the period commencing from the first day of the month following the month in which the loan is drawn up to the last day of the month in which the last instalment of the loan is repaid:
  Provided that where the loan is not repaid, or is repaid only in part, within a period of thirty six months, interest on the amount of loan outstanding shall be charged at six per cent per annum instead of at one per cent per annum with effect from the first day of the month following the month in which the loan was obtained, to the last day of the month in which the loan is finally repaid.
• The interest on the amount of loan outstanding under the proviso to sub-paragraph (2) and any portion of interest payable, but not paid, on any loan, the principal amount of which has already been repaid within the period of thirty-six months, may, on becoming due, be debited to the holder’s account.
• The interest recoverable shall accrue to the Central Government.
• The interest on outstanding loans which are not paid before the expiry of thirty-six months or paid partly shall be debited to the holder’s account at the end of each year.
• In case of death of the account holder, the nominee or legal heir shall be liable to pay interest on the loan availed by the account holder but not repaid before his death. Such amount of due interest shall be adjusted at the time of final closure of the account.

Also Read - PPF Withdrawal Rules & Premature Closure

Frequently Asked Questions on Loan Against PPF

Q. Can I avail loan on Public Provident Fund (PPF) Investment?

Yes, as a PPF account holder, you can avail of a loan of 25% on the year-end balance of the second year. The loan can be availed between the third and the sixth year of account opening.

Q. What is the tenure of a Loan against PPF?

PPF loans are personal loans that must be repaid within 36 months from the first day of the month following the month in which the loan is sanctioned. The interest must be paid after the principal repayment. The interest payment must be done within two months of principal repayment.