Personal Loan or Loan Against PPF: How to Decide?

Personal Loan or Loan Against PPF: How to Decide?

If you have ever come across a situation, where you needed additional funds, we are sure you may have thought of opting for a loan. While the need to purchase a car or a home can be conveniently met with dedicated Car Loans and Home Loans, other obligations such as medical expenses, tuition fee, home renovation costs, business expansion needs, etc. ought to be dealt differently. It is at this point that most people think of Opting for a Personal Loan.

Owing to swift approvals, Personal Loans are extremely helpful in emergency situations. However, if you want to save on the interest rate and seek a more affordable alternative, you can consider secured loans such as Loan against PPF. While not as popular as Personal Loan, Loan Against PPF often entails numerous benefits, along with being more cost-effective.


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Let us draw a simple comparison between the two and help you understand which of the two will be the best-suited option for your financial situation.

What is Personal Loan 

A Personal Loan is a readily available unsecured Loan offered by banks, NBFCs, and other lenders. The Personal loan is characterised by minimal documentation, quick approval, and disbursal as well as high loan amounts. However, in exchange for these benefits, the borrower is liable to pay a comparatively high-interest rate.

Personal Loan on Aadhar Card Calculate Loan EMI

Personal Loan – Features

Let us explore the most important features of a Personal Loan.

  • Loan Amount

    The loan amount offered for Personal Loans usually varies from Rs. 50,000 to Rs. 25 lakhs. The loan limit is often dictated by features like borrower’s income, credit history, and debt-to-income ratio.

  • Interest Rate

    A Personal Loan often attracts an interest rate ranging from 10.75% to 22%, and in some cases even as high as 25%. Again, this largely depends on the lending institution as well as the credit rating of the borrower.

  • Processing Fee

    Most banks and lenders levy a one-time, non-refundable processing fee of 0.5 to 2.5% of the loan amount. Hence, if you are looking forward to borrowing an amount of Rs. 10 Lakh, you should expect to shell out a processing fee of ranging anywhere from Rs. 5,000, and Rs. 25,000 for the same. 

  • Tenure

    A Personal Loan is usually offered for a period ranging from 12 months to 60 months. However, some lenders offer the same for an extended loan tenure of 84 months to offer greater flexibility to the borrower.

What is Loan Against PPF

A Public Provident Fund, popularly known as PPF, is a Government-backed long term investment option that offers attractive interest rate and returns are fully tax-exempt. Investors are required to invest anywhere between Rs. 500 and Rs. 1.5 Lakh per financial year, which helps them enjoy facilities like eligibility for credit, liquidity, and extension of account.

The PPF Account matures 15 years after the end of the financial year in which the initial subscription was made. The Ministry of Finance notifies the interest rate for the PPF each quarter. The interest is compounded annually &  paid on March 31. 

Owing to Coronavirus pandemic and prevailing lockdown, the government has revised rate at 7.1 % from April 2020 – June 2020.

PPF Interest rates for the last few years:

Time Period PPF Interest Rates

April 2020 – June 2020


July 2019 – March 2020


July 2018 – June 2019


January 2018 – June 2018


July 2017 – December 2017


April 2017 – June 2017


April 2013 – March 2016


April 2012 – March 2013


The investor is allowed a partial withdrawal from their PPF account five years from the end of the Financial Year (FY) in which the initial subscription was made.

While no withdrawals can be made from the account before the start of the 7th financial year from the first investments, you can take a loan against PPF account. In this case, the loan amount depends on the account balance in the last Financial Year. What makes this short-term loan incredibly beneficial is the low-interest rate charged on the loan amount.

Loan Against PPF – Features

Taking a Loan Against PPF Account is rather simple, and is largely characterised by the following features –

  • Eligibility

    While all account holders are eligible for taking a Loan Against PPF, you can only avail this facility between the 3rd and 6thFinancial Year of opening the PPF account.

  • Loan Amount

    You can avail a loan amount of up to 25% of your PPF Account Balance at the end of the second year preceding the year in which the loan was applied for. The facility can be used only once in a year. You can avail another loan only after repaying the full amount of the first loan. 

  • Interest

    The interest levied on the Loan Against PPF, is charged at 1% above the interest earned on the balance in the PPF Account. Since the current interest earned on the balance is 7.1% , the interest levied on the loan will be 8.1%,  which is much attractive, especially in case of emergency.

  • Tenure

    Unlike conventional loans, when it comes to the interest payment, you will be required to pay off the principal amount first, and then the interest amount, which must be paid off in up to two instalments. Usually a Loan Against PPF Account is offered for a maximum of 36 months; however, if you are unable to repay the loan amount along with interest during this period, your tenure can be extended. In this situation, you will be required to pay a higher interest, at the rate of 6% in place of 1%. Besides your investment balance in PPF account will not earn interest until your repay the  loan.

  • Outstanding Interest

    If you have repaid the loan amount in full, within the stipulated tenure, but haven’t been able to pay the interest, then the outstanding interest will be deducted from your PPF Account balance.

Personal Loan vs. Loan against PPF

  • Loan Tenure

    In case of a Personal Loan, the tenure can vary from 12 months to 60 months, depending on the loan agreement failing which you can suffer a severe blow to your Credit Score, whereas a Loan Against PPF needs to be repaid within 36 months, failing which the interest rate increases by 4%.

  • Loan Amount

    The loan amount in case of a Personal Loan can be rather high, going up to Rs. 25 lakh and even more, depending on your income and repayment history. However, a Loan Against PPF restricts the loan amount to 25% of the account balance at the end of second financial year preceding the year in which you apply for the loan. If the account balance is low, the loan amount will be significantly less, irrespective of your earning capacity.

  • Frequency of Borrowing

    You can take more than one Personal Loan in a year, as long as you are regular with your EMI payments, and your lender is comfortable lending you additional money. This is, however, not possible with a Loan Against PPF, wherein you are only allowed to take one loan in any given fiscal year.

  • Interest Rates

    As you may have come to understand by now, Personal Loan Interest Rates are higher at 10.75 to 25% per annum, as compared to Loan Against PPF interest rates, which are simply 1% higher than the interest earned on the PPF account balance.

Final Verdict

If you can meet your financial obligation with the amount you are eligible to raise when taking a Loan Against PPF, you should, by all means, opt for this secured loan alternative. It can help you save a significant amount of money which would otherwise go towards the high-interest outgo on a Personal Loan.

However, if you are looking for a more substantial loan amount for a longer duration of time, a Personal Loan will best suit your needs.


Also Read: All You Need to Know About a Loan Against Fixed Deposits


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Category: Personal Loan