Personal loan or loan against PPF: Know which is better

5 MinsOct 03, 2022

Barkha Pandit’s sister is getting married, and the family expects her to contribute to the wedding expenses. Barkha was exploring various ways to raise the necessary funds and finally zeroed in on two options – taking a personal loan or borrowing from her Public Provident Fund (PPF) corpus.

Personal loan or loan against PPF


She consulted her Axis Bank Relationship Manager (RM) to understand which is a better choice. Here is what the RM told Barkha:

Amount
The amount Barkha can borrow in a personal loan is only limited by the bank’s judgement of her creditworthiness and repayment capacity. Depending on these factors, Axis Bank, for example, gives personal loans between Rs. 50,000 and Rs. 40 lakh.

According to current PPF rules, Barkha can only borrow up to 25% of the corpus available in the account, two years immediately preceding the Year in which the loan is applied for. This means that in FY’22, Barkha can only borrow up to one-fourth of her corpus at the end of FY'20.

Tenure 
Personal loans can be taken for tenures of up to five years. A loan from a PPF account has to be repaid within three years.

Ease of documentation and transaction
Personal loans are easy to avail. Minimal documentation is required and in the case of pre-qualified customers, the entire documentation can be done online. In some cases, the loan amount can be credited to the borrower’s account within hours, if not minutes.

As against this, the loans from PPF accounts have to meet some conditions. To begin with, there is a window during which you can apply for the loan. This is after the end of one year from the year in which the initial subscription was made but before the end of five years from the year in which the initial subscription was made. 

For instance, assuming Barkha opened her PPF account and made the initial contribution in 2017, she can avail of a loan after April 2018 and before March 2023. 

Secondly, for a loan from a PPF account, certain documents are required, such as a loan form and KYC documents. But if the papers are in order, the process can be completed within two days of applying for the loan. Also, an account holder is allowed only one loan in a year. 

[Also Read Five questions to ask before availing of a personal loan]

Interest Rate
Personal loans interest rates can range from 12-21%, depending on the borrower’s credit history and repayment capability.

The interest rate on loans against PPF accounts is capped at one per cent more than the prevailing rate of return (currently 7.1%). This means that if Barkha borrows from her PPF account, she will be paying an 8.1% interest rate. 

Repayment of loan
In the case of a personal loan, the repayment is in the form of EMIs, which are based on the interest rate and loan tenure. 

For the loan against PPF, the principal amount has to be repaid before the end of three years, which is calculated from the second month after the loan is sanctioned. It can be repaid either in a lump sum or in instalments. 

Once the principal is repaid, the interest should be repaid in one or two instalments, starting from the second month after the loan is drawn and up to the month in which the last instalment is repaid. 

Summing up, the RM told Barkha that she would be best advised to take a personal loan as it would be more flexible in terms of tenure and amount, besides being easy to access. 

While repaying her loan, she should continue investing in her PPF account to ensure that it continues to earn interest over the long term and that her corpus for future needs remains intact. 

Axis Bank offers Personal Loans ranging from a minimum of Rs. 50,000 to a maximum of Rs. 40,00,000. Axis Bank Personal Loans come with tenures ranging from 12-60 months. So, check out what works for you.

Any salaried employee of a public or private limited company or the government sector between the ages of 21 and 60 years, having a minimum monthly income of Rs. 15,000 is eligible for an Axis Bank Personal Loan. You need minimum paperwork to get this loan: Identity proof (Aadhaar card, driver’s license, voter ID), PAN card, proof of residency, and salary slips.

Apply for Axis Bank Personal Loan and use our personal loan EMI calculator online!

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