The Public Provident Fund (PPF) is not just a long-term savings option but also allows you to take a loan against your balance. Many investors compare this with a regular personal loan to decide which option is better during emergencies. Here’s a complete comparison of Loan Against PPF vs Personal Loan.
Loan Against PPF – Key Features
- You can avail a loan from the 3rd to 6th financial year of your PPF account.
- Loan amount can be up to 25% of the balance at the end of the 2nd year preceding the year of application.
- Interest rate: PPF loan rate = PPF interest rate + 1% (currently ~8.1%).
- Loan must be repaid within 36 months.
- If not repaid, interest increases to 2% above PPF interest rate.
- No need for credit score checks or income proof, since the loan is secured against your own PPF balance.
Example: If your balance was ₹2 lakh at the end of FY 2022, you can take up to 25% = ₹50,000 loan in FY 2024.
Personal Loan – Key Features
- Offered by banks and NBFCs without collateral.
- Loan amount depends on income, credit score, and repayment capacity.
- Interest rate: Usually between 10% to 20% p.a.
- Repayment tenure: 12 months to 5 years.
- Faster disbursal but requires documents like salary slips, bank statements, and credit score check.
Example: If you take a ₹50,000 personal loan at 14% interest for 3 years, your EMI will be ~₹1,707, and total interest paid will be ~₹11,500.
Loan Against PPF vs Personal Loan – Key Differences
| Feature | Loan Against PPF | Personal Loan |
|---|---|---|
| Eligibility | Available from 3rd to 6th year of PPF | Based on income & credit score |
| Loan Amount | Up to 25% of PPF balance (end of 2nd year) | Depends on salary, profile, credit history |
| Interest Rate | PPF rate + 1% (currently ~8.1%) | 10% to 20% (varies by bank/NBFC) |
| Tenure | Up to 36 months | 12 to 60 months |
| Credit Score Needed | No | Yes |
| Processing Time | Linked to PPF account, quick approval | Quick disbursal but requires checks |
| Penalty | Higher interest (PPF + 2%) if default | Late payment fees & higher interest |
| Account Status | PPF account continues | Not linked to savings scheme |
| Best For | Small, short-term needs | Larger amounts and longer tenure |
Which is Better – Loan Against PPF or Personal Loan?
- Loan Against PPF is better if:
- You need a small loan (limited to 25% of balance).
- You want a lower interest rate compared to personal loans.
- You want to avoid credit score checks.
- Personal Loan is better if:
- You need a higher loan amount (since PPF loan limit is low).
- You want a longer repayment tenure (up to 5 years).
- Your PPF account is beyond the 6th year (when PPF loan is not available).
In short: PPF loan is cheaper but limited. Personal loan is costlier but flexible.
FAQs on Loan Against PPF vs Personal Loan
1. What is a loan against PPF?
A loan against PPF is a loan you take using your PPF account balance as security. It’s allowed only between the 3rd and 6th year of opening your PPF account.
2. What is a personal loan?
A personal loan is an unsecured loan. You don’t need to give any asset or investment as security. Approval depends on your income, credit score, and repayment capacity.
3. Which loan has a lower interest rate?
Loan against PPF usually has a much lower interest rate.
- Loan against PPF: PPF interest rate + ~1%
- Personal loan: Generally 10% to 24% or more
So yes, PPF loan is clearly cheaper.
4. Which one is easier to get?
It depends.
- Loan against PPF is easy if you already have a PPF account with sufficient balance.
- Personal loan is easier if you have a good salary and credit score, even without investments.
5. Can I take a loan against PPF anytime?
No. You can take it only from the 3rd year till the end of the 6th year from the date you opened the PPF account.
After that, loans are not allowed only withdrawals.
6. How much loan can I get?
- Loan against PPF: Up to 25% of the PPF balance at the end of the previous financial year.
- Personal loan: Amount depends on your income, credit score, and lender rules. It’s usually much higher.
7. What about repayment terms?
- PPF loan: Short repayment period (usually 36 months).
- Personal loan: Flexible tenure, generally 1 to 5 years, sometimes longer.
8. Does taking a PPF loan affect my PPF account?
Yes, slightly.
- Your PPF balance remains intact
- But until the loan is repaid, your returns are marginally reduced
- Still, it’s better than breaking the account or withdrawing early.
9. Does a personal loan affect my credit score?
Yes.
- Timely EMIs improve your credit score
- Missed payments can seriously damage it
- A PPF loan usually has no impact on your credit score.
10. Which loan is better for emergencies?
- Short-term, low-cost need → Loan against PPF
- Higher amount or long-term need → Personal loan
If you already have a PPF account, the PPF loan is often the smarter first option.
11. Can I use the loan money for any purpose?
Yes, both loans are multipurpose. There are no restrictions on how you use the money.
12. Which one should I choose?
Choose Loan Against PPF if:
- You have an active PPF account
- You need a smaller amount
- You want low interest
Choose Personal Loan if:
- You need a larger amount
- Your PPF loan window is closed
- You need longer repayment time
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