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Loan Against PPF

Loan Against PPF Account

Last Updated 27th May 2022

  • Loan against Public Provident Fund is a personal loan that PPF account holders are eligible to avail against their PPF savings.
  • This loan can be availed between the third financial year and the end of the sixth financial year of opening the PPF account.
  • A lower interest rate is levied on loans against PPF as compared to that on other traditional personal loans.
  • Borrowers can repay the loan within 36 months starting from the date of disbursement.
  • To calculate the interest payable on a loan against PPF, you can use a loan against PPF calculator or calculate it manually.
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What is Loan Against PPF Account?

Public Provident Fund or PPF is a savings scheme whereby account holders are allowed to invest small amounts and earn substantial returns along with tax benefits. Loan against PPF account is a type of personal loan available for PPF account holders. Banks offer this loan at a nominal interest rate from the third year of investment in a PPF account.

Since the PPF savings act as collateral, the loan is considered secured and banks approve the loan easily. This loan aims to allow individuals to avail a loan at the time of need without having to pay huge interest. This loan comes with dual benefits, as it allows you to perk your savings safely and provides financial assistance when required.

Key Features of a Loan against PPF Account

Before applying for a loan against PPF, it is important to know the key features of such a loan in order to understand whether you are eligible and ready to take this loan or not. Some of the important features of a loan against PPF are listed below:.

  • The upper limit of the loan amount is set at 25% of the accumulated balance in the PPF account by the end of the respective financial year. Thus, you can calculate a loan against PPF by considering 25% of the available PPF balance at the time of loan application.
  • Investors in PPF can apply for this loan once the PPF account reaches its third year. The loan facility is provided till the sixth financial year.
  • Loan against PPF interest rate has been fixed at 1% more than the accrued interest on the PPF balance. Thus, the interest on this loan is susceptible to changes. The current interest on PPF is 7.10% per annum.
  • The loan can be repaid within 36 months in installments.
  • If the loan is not repaid within a 36 months period, the interest rate will be increased to 6% more than the interest earned on the PPF account.
  • The principal loan amount must be repaid first and then the interest, to be paid in two installments or lesser.
  • In case the borrower repays the principal amount within the specific loan tenure but not the accrued interest, the outstanding amount will be deducted from his PPF account.
  • From the 7th financial year onwards, account holders can partially withdraw from the PPF account.
  • You cannot apply for a second loan against PPF until the first loan is repaid completely.

Advantages of taking a loan against PPF account

By taking a loan against a PPF account , you can get easy access to funds at the time of financial emergency against your prior investment. Such a loan can be beneficial for you in more than one way. Some of the advantages of availing a loan against PPF account are mentioned below.

  • No collateral required: You can get a loan against PPF without pledging any asset as collateral or mortgage to the lending bank. The PPF savings act as security.
  • Low rate of interest: The interest charged on loan against PPF is considered nominal. Thus, loan against PPF interest rate is lower than the interest rate charged on other traditional personal loans.
  • Long repayment tenure: You can repay the loan within 36 months. Thus, you can repay the amount throughout a long tenure without putting much burden on your monthly expenses. The repayment tenure begins from the very first day of the next month of the loan sanction.
  • Flexible repayment options: Loans taken against the PPF balance can be repaid in monthly installments. You can pay the principal amount either in two or more installments or as a lump sum at once.

Calculate Loan against PPF Interest Rate

You can calculate the loan against PPF interest rate manually or by using a loan against PPF calculator.

Let’s take an example to understand how to calculate a loan against PPF interest rate.

Suppose you invested ₹ 20,000 every year for 5 years. As per rule, you can take a loan of 25% of the available PPF balance at the end of the third year. Now, you decide to take a loan against your PPF savings at the end of the third year. Here is how you can calculate the numbers.

The current interest rate on PPF being 7.10%, the total balance at the end of the third year will amount to:
A = P(1+r)^t

Here, A is the maturity amount, P is the principal amount, R is the rate of interest and T is the tenure. Hence, the maturity amount = 20,000 (1+7.10)^3 = ₹ 1,06,28,820.Further, you can calculate loan against PPF using the following method:
25% * (Balance available at the time of applying for the loan)
=(25/100 *1.06 Cr )= ₹ 26,57,205

As you know, the interest charged on the loan is 2% more than the accumulated interest on PPF balance, that is, 9.10% in this case.
Thus, the total interest payable on the borrowed amount will stand at: (9.10/100 * 2.66 Lakh) = ₹ 24,180.52


When can you take a loan against a PPF account?

You must have a Public Provident Fund account in a bank in order to be eligible to apply for a loan against PPF. You can take a loan against PPF between the third year onwards and the end of the sixth financial year from the date of opening your PPF account. After this period, you are eligible to withdraw partially from your PPF account.

How much can you withdraw?

From your PPF account, the maximum amount that you can withdraw or avail as a personal loan is 25% of the total amount in your PPF account. The PPF balance considered for this is the one that is accumulated by the closing of the second financial year prior to the year the loan was applied for.

What will be the interest charged on the loan?

If you take a loan against PPF, the interest charged will be 2% more than the accrued interest on the balance in your PPF account. It implies that if the rate of interest on PPF increases, the interest on the loan will also increase proportionately. However, the interest rate charged on this type of loan is lowest in comparison to the interest charged on other personal loans.

What will be the tenure of the loan?

The tenure on loan against the public provident fund is fixed at 36 months. The tenure will be calculated from the very first day of the month following the one in which the loan against PPF was sanctioned. In case you fail to repay the borrowed amount within the loan tenure, the interest charged on the loan will rise from 2% to 6% more than the interest earned on the PPF balance.

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