Introduction
Most individuals plan their finances by investing in some form. There may come a time when an individual may require extra monetary help. This might be due to unforeseen expenses or some emergency. In such situations, taking a loan might be unavoidable. This often happens when investments aren’t liquid or are insufficient to cover the fund requirement.
Most employed professionals have a PPF account that holds their savings accumulated over many years of employment. This is often considered an option to cover emergency fund shortages instead of taking a loan. However, withdrawing funds from a PPF account also comes with its limitations. Let us consider a head-to-head comparison - Personal Loan vs. PPF.
What is PPF (Public Provident Fund)?
The Public Provident Fund scheme was launched in 1968. Individuals can save effectively through this scheme while enjoying a good rate of interest. This scheme also comes with tax benefits for the investor. It is an ideal investment avenue for salaried people and helps them build a corpus for retirement.
Some key features of PPF
- A person can open a PPF account with a small amount as low as Rs. 100, and investments of up to Rs. 1.5 lakh in a year are exempt from income tax (under section 80C).
- PPF accounts have a lock-in period of 15 years, which can be extended for five years. Partial withdrawals can be made if required.
- The amount can be deposited in any form, such as cash, cheque, online transfer, or demand draft.
- Premature closure is possible only after five years for a valid reason like money required for education, wedding, or hospitalisation.
- PPF accounts can be opened in a child's name. When the child turns 18, the money gets transferred to them.
Loan against PPF
Personal loans can be taken against a PPF account at competitive rates of interest. The following points should be kept in mind while applying for a loan against a PPF account -
- Loans can be taken between the 3rd and the 6th year of opening a PPF account and must be repaid within three years.
- One can avail 25% of the investment value as a personal loan against a PPF account.
- If the need for a second loan arises, it is compulsory to clear the previous loan first.
- The interest rate of a loan against a PPF account will be 2% more than the interest rate of the PPF account. It is a fixed interest rate and will not change till the tenure ends.
- If the account holder defaults in repayment within three years, the interest rate would rise to 6% more than the interest rate of the PPF account.
Benefits of taking a loan against PPF
- A loan against a PPF account doesn’t require any other collateral or mortgage.
- One can repay it within three years from the date it was availed.
- Repayments can be made in two or more instalments. The amount can also be repaid as a lump sum.
- The interest rate on such loans is much lesser than the interest rate offered by banks for personal loans.
What are Personal Loans?
Whenever someone needs monetary assistance, one of the easiest ways to meet the requirement is to take a personal loan. It is an unsecured loan offered by a bank depending on one's credibility. In return, banks charge an interest rate on personal loans, which is higher than an education or a home loan. The different types of loans in this category are wedding, travel, pension, etc. The amount offered by banks as a personal loan ranges from Rs. 50,000 to Rs. 25 Lakh, and the tenure is usually seven years.
Getting approval for a personal loan online is easy with immediate bank disbursement. Most banks offer this facility.
The following steps need to be followed to get an instant personal loan from Tata Capital:
- Enter details like your name, mobile number, and PAN number and verify them.
- Enter the loan amount, and if pre-approved, enter the sanctioned amount.
- Enter personal details like age, profession, salary, etc., and banking details like account number, bank name, IFSC, etc.
- Set up an e-mandate. Complete this with a one-time authorisation.
- Specify if any additional facility is needed, like an insurance cover for the personal loan.
- Accept the e-agreement after verifying the personal loan details. The loan will get disbursed immediately.
Documents required for availing a personal loan:
- Photo ID proof, such as an Aadhaar card, driving licence, passport, or voter ID.
- A copy of salary slips for the last three months.
- Bank statement for the last six months.
- Address proof, like an electricity bill, ration card, passport, or Aadhaar card.
- The employment certificate stating you have been working in the organisation for the past one year.
Personal loan vs PPF
- The requirements for a personal loan include having a good credit score, appropriate applicant age, and a regular income. On the other hand, a PPF loan can be taken between the 3rd and 6th year of opening the PPF account.
- There is no maximum ceiling on taking a personal loan, whereas, for a PPF loan, 25% of the investment can be availed.
- Interest rates are comparatively high for personal loans, whereas PPF loans have an interest rate of 1% more than the prevailing PPF interest rates.
- Personal loan tenure is usually 6 to 7 years, whereas a PPF loan has to be repaid within three years.
Conclusion
To sum up, if one requires a big amount with a flexible repayment tenure, then a personal loan is a good option. On the other hand, if a small amount is needed for a short period, it is better to go with a loan against PPF.
Opt for the most optimum loan that fits your needs with Tata Capital’s wide range of personal loan options at attractive interest rates and enjoy a quick, hassle-free disbursement.
26 July 2022
5 mins read
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