Though personal loans are processed quickly, a loan against your PPF account gives you a lower rate of interest. During an emergency, which one will serve you better? Read on to learn the differences between personal loan and a loan against your PPF account.
A rosy life with no unexpected financial crisis seems a bit hard to reach. Anyone can be faced with a sudden financial crunch and are required to get a loan to meet these expenses. Furthermore, when the need is urgent, we want to go for the quickest mode of credit.
Personal Loan is the first option that comes to anyone’s mind as it can be processed within 24 hours and the funds can be put in your hands instantly. But is that the best option? What about the exorbitant interest charges?
If you are a salaried person and your employer deducts PF from your salary, assuming that you have considerable employment tenure, your PPF account will have a sizable corpus. You can take a loan from your PPF account during such emergencies too.
So, how do I decide which loan to go for? What are the factors to look for when taking either of the loans? Here is a short pros and cons list to help you with your decision making.
Personal Loan Vs. Loan against PPF Account - Key differences
Loan Against PPF Account
Instant loan available based on your salary and credit score
Eligible for loan only after the 3rd year of account opening up to the 6th year
No capping on loan amount
Loan amount limited to not more than 25% of the amount that was available in the account at the end of the second year immediately preceding the year in which the loan is applied for
Repayment tenure of up to 5 years
Only 3 years repayment term
Interest rate is high as it is an unsecured loan
Interest rate is only 1% of the availed amount
Processing time is less than 48 hours
Can take up 15 days to be sanctioned
Find The List Of Top 10 Banks Offering Low Interest Rates
Let us see some of the points in a bit more detail to give you more clarification:
1. Loan Amount: The main reason for getting any loan is because we cannot arrange the funds on our own. So going for a credit option that gives a higher loan amount is the smart choice. Personal loans can offer you loan amounts of up to Rs.25 lakhs, or even more, based on your salary and repayment capacity. But loan against PPF is restricted to only 25% of the amount that has been accumulated up to 2 years back in your PPF account. This amount might not be a huge amount unless your salary is pretty high, or you have been in service for very many years. So a personal loan seems to be the obvious choice for large expenses like marriage, higher education or a foreign vacation.
2. Interest rates: This is another major factor in choosing a loan. Personal loans are unsecured loans and hence come with an interest rate of 10-25% per annum. But PPF Loans charge you only 1% interest. But you will not be paid the PPF interest for the loan amount until you repay it. So the actual interest rate would work out to the PPF interest rate + 1%, which would still be lower than what personal loans would normally charge.
3. Repayment tenure: Longer the repayment tenure, better the loan. You should be able to repay the loan comfortably. So personal loans would be a good choice as they offer up to 5 years of repayment tenure. But PPF loans have to be repaid within 3 years. If the loan amount is huge, going for a repayment tenure would be the wise choice.
4. Number of times you can borrow: With PPF loans, you can get only one loan in a year. But with personal loans, you can get multiple loans in a year. This is an advantage to meet different needs or to go for a top-up loan for the same expense.
Verdict – If you are in a hurry and want a large sum, go for personal loans. PPF loans are good for planned expenses.
PPF loans are economical when you don’t want to borrow a large sum of money and pay exorbitant interest rates. These loans are good for smaller expenses like school/college fees, some minor medical procedure, home repair or renovation, etc. If the expense is big, like some major medical emergency, foreign vacation, kids’ marriage, kids’ higher studies in foreign universities and so on, you can take a personal loan that gives you higher loan amounts and comfortable repayment tenure.
FAQs Difference Between Personal Loan And Loan Against PPF Account
- Can I take a loan against my PPF Account?
Yes, PPF loans can be taken against your accumulated amount. But loans are allowed only after the 3rd year of account opening up to the 6th year.
- How much loan can I get from my PPF Account?
PPF loan amount is subject to a maximum of 25% of the accumulated PPF amount that was available in the account at the end of the second year immediately preceding the year in which the loan is applied for.
- How much personal loan can I get?
A salaried individual can get up to 10 times his monthly gross salary as a personal loan. But the final eligibility depends on credit score and other existing loans. Click here to check your personal eligibility today!
- How many times can I withdraw money from my PPF account?
You can withdraw money only once per year from your PPF account.
- Is there a limit on the number of personal loans I can get in a year?
No, there is no limit on the number of personal loans you can get in a year. Your loan eligibility depends on your salary, credit score and other existing loans and liabilities.
- Can I have 2 PPF accounts in my name?
As per government rules, an individual cannot hold more than one PPF account.
- Can I apply for a PPF loan online?
PPF accounts held with banks allow you to manage your PPF account online. You can manage, withdraw and apply for loans from your PPF account online. Here is an interesting read on how to open a PPF account online.
- Who is eligible for a personal loan?
Indian citizens over the age of 21 years, with a stable monthly income, can apply for a personal loan.
- How much loan can I get on a Rs.35,000 salary?
Banks usually consider your gross monthly income for a personal loan. Some banks offer up to 10 times your gross monthly salary. Assuming that you have a credit score of more than 700, with no existing loans or liabilities, and you meet all other eligibility criteria of the bank, you may be able to get a personal loan of up to Rs. 35 lakhs.
- Is IT returns mandatory for a personal loan?
Yes, the ITR of the past 2 years needs to be submitted to get a personal loan.