A "low interest" loan shouldn't mean you have very little interest in paying it back!
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  • How to Pay Bills and Loan EMIs in Lock Down

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  • The Covid-19 pandemic has impacted the Indian economy significantly. With a lockdown being enforced in the entire country, businesses of all kinds and sizes have been struggling to generate revenue. This has impacted both employers and employees. Payments for rent, EMIs, credit card dues, school fees, as well as other day-to-day expenses have to be taken care of without any interruption. At the same time, there have been cuts in salaries with some even losing their jobs. This has resulted in financial challenges due to the cash crunch.

    1. Government Measures to Tackle Crisis

    The Government of India has announced various measures to make it easier for people to meet their financial obligations. Some of these are:

    • EMI moratorium: The government has announced a three-month moratorium on EMI payments on term loans (which would include housing loans, vehicle loans, personal loans, etc.). However, the interest during this period will continue to accrue, which has to be paid at the end of the moratorium period. This can be done either by increasing your EMI or increasing your loan repayment tenure.
    • Credit card dues moratorium: This is the same as above.
    • EPFO withdrawal: You can withdraw a specific amount from your Employees’ Provident Fund account which is equivalent to three months’ basic wages or up to 75% of your EPF account balance, whichever is the lower amount.

    While choosing the moratorium on your loan EMIs or credit card dues may result in a higher interest component for you to pay back, and dipping into your EPFO funds would result in less savings for you in the long run, there is another way in which you can meet your cash crunch without paying a high rate of interest or reducing your savings.

    2. Public Provident Fund Loans

    A low-interest loan from the Public Provident Fund can be availed if you have a PPF account. The loan that you avail against your PPF funds will have to be paid back with an interest rate of just 1% p.a.

    The following points have to be kept in mind:

    • You can only avail a loan against your PPF account after 3 years of opening the account
    • You cannot avail a loan after the 6th year of opening the account is over
    • At the end of the second year, immediately before the third year of applying for a loan, you can withdraw up to 25% of the balance in your account
    • You can make partial withdrawals from your PPF account from the 7th year of opening the account
    • There is no need to provide any security or collateral for the loan
    • Your credit score does not matter in availing the loan or in the calculation of the EMIs
    • The repayment tenure for the principal amount of the loan is 36 months
    • The payment has to be made either as a single payment or in monthly instalments of two or more months
    • The interest component is paid after the full repayment of the principal amount is completed
    • The interest amount should be repaid in no more than two instalments
    • If you do not make timely repayments on the loan, the interest increases to 6% p.a.

    How to Apply for a Loan Against PPF Account

    • To apply for a loan against your PPF account, follow the steps given below:
    • Visit the official website of your bank
    • Check your loan eligibility
    • After you know how much you are eligible for, visit your nearest bank branch or post office
    • Submit a duly filled in and signed Form D
    • There are some banks that offer online facilities to apply for this loan but most would require a visit to the bank office for the same.

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