Loan Against Public Provident Fund PPF The Rules Interest Rates and Benefits

28 December, 2023

PPF is a government-backed scheme designed to act as a long-term savings and investment option for residents of India. It is primarily aimed at enabling individuals to set aside funds effectively for their retirement years. A key element of a PPF account is its long-term nature, underpinned by a lock-in period of 15 years. What’s more, when you’re in need of immediate financial assistance, you can get a PPF loan. Keep reading on to know more.

What is PPF?

PPF or Public Provident Fund is a long-term savings scheme provided by the Indian government. It is open to all individuals, including minors. Individuals can contribute a certain amount of money to their PPF account annually and they can get tax benefits on these contributions. The interest rates offered on PPF are attractive and the maturity period is 15 years.

PPF loan: Rules

If you need a loan with affordable interest rates and generally flexible terms, you may consider availing of a loan against your PPF balance. Here are the important terms associated with a loan on your PPF Account.

• Loan application timelines

You can get a loan after expiry of one year from the end of the financial year in which you opened your PPF Account. For instance, if you had opened your PPF Account in FY2020-2021, you can take a loan in FY2022-23.

Also, you can take a loan before five years from the end of the year in which you had opened the PPF Account.

• Loan amount

You can get a loan amount equivalent to 25% of balance at the end of the second year immediately preceding the year in which you will make the loan application. For instance, a loan taken in FY2023-2024 will be 25% of PPF balance at the end of FY2021-2022 or on 31st March 2022. 

• Repayment tenure

The repayment period of a PPF loan is 36 months or 3 years, starting from the first month after the loan amount is disbursed. 

• Interest Rates
  
  

The interest charged on your PPF loan is 1% more than the prevailing PPF interest rate. This rate will be applicable if you repay the loan within the repayment tenure of 36 months. If your repayment tenure exceeds 36 months, the applicable interest rate will be 6% greater than the prevailing PPF rates.


Important things to remember

The following are additional rules regarding loans against PPF:

• 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 amount in not more than two monthly instalments. 
• If you are unable to 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.
  
  

Benefits Of Loan Against PPF 

Here’s how a PPF loan can be a cost-effective financing option for you:

• Relatively low interest rates

PPF loans typically come with lower interest rates. Interest applicable will be an additional 1% to 2% above the prevailing PPF interest rates.

• No credit score or income proof required

With PPF loans, you are essentially pledging your PPF balance to get a loan. Hence, the lender may typically not request for your credit score or income proof.

• Quick processing

You can get a loan against your PPF easily as the process is quite straightforward. All you have to do is submit a loan request form at the bank branch or post office. Also, loan is provided on the basis of your existing balances. 

• No restriction on end-use

Once the loan amount is disbursed, the lender will not intervene when it comes to using the loan amount. You can use the loan amount to finance any personal or business expense. 

• No prepayment charges

You can repay your loan any time before the repayment tenure without additional charges. This way, you can also reduce your interest amount.


Bottom line

The PPF scheme is a comprehensive financial instrument serving dual purposes – A long-term savings tool and a reliable source for acquiring loans during financial emergencies. So, steer your financial planning with precision and avail the benefits of PPF loans whilst continuing to grow your wealth. As an HDFC Bank customer, you can open a PPF Account online via NetBanking. Click here to know more.

You can also open a PPF Account by visiting the bank. Click here to locate the nearest HDFC Bank branch. 


*The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Investments are subject to changes in tax laws. Please contact a professional consultant for an exact calculation of your liabilities.