Interest Rate For Loan Against PPF ( Public Provident Fund ) Account Is Chargeable At 10.6% p.a
You can avail loans against your PPF (Public Provident Fund) account provided certain conditions are fulfilled.
- First, your PPF account should be active and must have completed a financial year from the date of initial subscription.
- Second, you can apply for the loan only before the expiry of 5 fiscal years.
For instance, let us say you made the initial subscription in a PPF account in August 2012, i.e. in the financial year 2012-13. That fiscal year ends in March 2013. Your PPF account should have completed one financial year, i.e. from March 2013 to March 2014. So, you can avail a loan only after March 2014 and March 2018.
Once the loan is fully repaid, you can opt for a second loan but only before the expiry of 5 fiscal years, i.e. before March 2017 in the above example.
How much loan amount can you get against your PPF account?
You can apply for a loan amount of up to a maximum of 25% of the balance left in your account at the end of that financial year which would be 2 years before the end of fiscal year when the loan was applied.
For instance, if you apply for a loan in December 2012, that fiscal year would end in March 2013. Two years before that is 2011, so you would get 25% of the balance in your account at the end of March 2011.
So if you apply for a loan in the third fiscal year, you can avail a maximum of 25% of the balance in your account at the end of the first fiscal year and if you apply in the fourth year, the balance at the end of the second financial year is considered.
Effective Interest Rate For Loan Against PPF account
Earlier, the interest on the loan against PPF was 1% more than the interest rate on PPF account which used to be 8%. But as per the recent amendment made by the Government, the interest rate on PPF was increased to 8.6%. Also, the rate of interest on loan against PPF was raised to 2% more than the interest rate on PPF as opposed to the earlier 1%. So the interest rate for the loan would be 2% more than 8.6%, i.e. the effective interest rate is 10.6% .
(The revised rate of interest of 2% more than PPF interest is charged on the loans which are taken after 30.11.2011.)
Things To Consider For Repayment of the loan Taken Against PPF Account
The repayment of the loan taken against your PPF account must be done in 36 months. You have the option to pay the principal amount and interest separately, either in a lump sum or in two or more monthly installments within the time period of 36 months.
In case you are unable to repay the full principal amount before the expiry of the prescribed tenure, the interest rate on the balance loan amount would be increased to 6% more than the interest rate you receive on your PPF. If you have not paid the interest completely but repaid the principal, then the remaining interest would be deducted from your PPF account.