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  • Loan against PPF account

    One of the most beneficial features of the PPF account is that you can take a personal loan against the balance in the account.

    Advantages of taking a loan against your PPF account:

    • No collateral or mortgage required.
    • Repayment tenure of 36 months.
    • Interest rates far lower than those of traditional personal loans from banks.
    • Interest is charged at 2% more than the interest earned on the balance in the PPF account.
    • If the loan repayment crosses 36 months, the interest charged will be 6% more than the interest earned on the balance in the PPF account.

    Rules relating to taking a loan against your PPF account:

    • PPF account holders can only take a loan between the third and sixth financial year of opening the PPF account.

    For example, if Mr. A opened a PPF account in January 2010,

    • Year 1: April 2009 – March 2010 (Account opened within this timeframe – in January 2010).
    • Year 2: April 2010 – March 2011.
    • Year 3: April 2011 – March 2012. (Can take a loan starting in this year)
    • Year 4: April 2012 – March 2013.
    • Year 5: April 2013 – March 2014.
    • Year 6: April 2014 – March 2015. (Can take a loan only up to this year, as next year will qualify for partial withdrawals)
    • Year 7: April 2015 – April 2016 (Mr. A can begin withdrawing from his PPF account from this date).

    Loan amount is capped at 25% of the balance at the end of the second financial year preceding the year in which the loan was applied for.

    Considering the above example, if Mr. A wishes to take a loan as soon as he is legally allowed to do so, his maximum loan capacity will be 25% of the balance as on March 2010.

    No loan can be taken after the end of the 6th financial year after the account was created.

    Starting from the 7th financial year onwards, the account can be partially withdrawn from.

    Loans must be repaid within 36 months of when they were taken.

    Any loan exceeding the 36 month repayment period will be charged interest at 6% more than the earning interest rate.

    • Interest on PPF account loans should be repaid within 2 months after the principal amount has been repaid. This is charged at 2% per annum.
    • A second PPF loan can only be taken once the first one has been cleared in full.
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