Loan Against PPF

Public Provident Fund (PPF), a government recognized investment scheme, is a popular retirement-focused investment. Its tax-saving feature provides additional advantages. It has a 15-year lock-in period. Though this lock-in period refrains the account holder from using the account balance before the completion of the term, the Loan Against PPF allows the investor to take a personal loan against the deposited amount. Let us understand the PPF loan rules and how can we take loan against PPF.

What Is a Loan Against PPF Account?

PPF account allows account-holders to take short-term personal loans against the available account balance of the PPF account. This is called the Loan Against PPF account. The availed loan is charged at 1% p.a. and is to be repaid fully within 36 months. The detailed PPF loan rules that guide the withdrawal are explained below.

Features of Loan Against PPF

The PPF loan can be applied for if the account-holder meets the PPF loan eligibility. The features of the loan against PPF account and the PPF loan rules that guide PPF loan withdrawals are:

  • A loan against PPF can be availed between the 3rd and 6th financial year of opening the PPF account. From the 7th year onwards, the account-holder can partially withdraw the amount from their PPF account.
  • One-fourth of the account balance at the end of the 2nd financial year immediately after the loan application year can be availed as a loan.
  • PPF loan can be availed more than once. However, it is mandatory to clear the first loan before availing of the second loan.
  • The PPF loan interest is 1% more than the interest earned on the PPF account. Thus, any change in the PPF interest rate will directly impact the PPF loan interest also.
  • The maximum loan tenure of the PPF loan account is three years.
  • The PPF loan account must be closed within three years. If the PPF account holder fails to repay the loan within three years, the PPF loan interest applicable will increase by another 5% above the interest earned. This will make the total PPF interest rate at 6% more than the interest earned.
  • The subscriber must repay the principal loan amount and interest thereon in full within the loan tenure. In case the principal amount is repaid, but there is a default in interest repayment, the outstanding loan amount is deducted from the PPF account balance of the borrower.
  • The principal amount is repaid first, followed by the interest amount. The interest component can be repaid in a lump sum or two monthly instalments.
  • The amount of loan availed will not earn any interest till the time it is repaid in full.

PPF Loan Interest Rate

PPF loan interest is 1% more than the rate of interest earned on the deposits. This essentially means that the account holder has to forego the interest earnings on PPF for the period for which the loan is applied. In addition to this, an additional 1% is charged per annum.

For instance, the current PPF interest rate is 7.1% p.a. The account-holder who meets PPF loan eligibility can take a PPF loan. The current PPF loan interest rate 2021 is 8.1% p.a. (7.1% +1%).

PPF Loan Eligibility

A maximum of 25% or one-fourth of the PPF account balance at the end of the 2nd year or in the preceding year in which the loan has been applied can be availed as a loan. 

For instance, a subscriber who has deposited the max limit allowed of Rs. 1.5 lakh for a period of 2 years after account opening will have an account balance of Rs. 3 lakh + interest. Hence, 25% of the account balance, i.e. Rs. 3 lakh + interest can be availed as a PPF loan. Thus, the PPF loan eligibility increases every year. The 7th year onwards, the PPF account-holder can partially withdraw up to 25% of the account balance preceding the year in which the loan has been applied.

The PPF loan eligibility is calculated using a PPF loan calculator. PPF account holders are eligible to apply for another loan once the first loan is fully repaid along with interest.

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Loan Against PPF FAQs

Can we take a loan against PPF?

Yes, subscribers can avail of a loan against PPF, provided all PPF loan eligibility conditions are met. Also, the PPF account must be active, i.e. the PPF account must have at least one deposit entry of the minimum contribution of Rs. 500 in every financial year since the PPF account was opened.

What is the maximum amount of loan against PPF permissible?

A maximum of 25%, i.e. one-fourth of the PPF account balance at the end of the 2nd year or in the preceding year in which the loan has been applied, can be availed as a loan. Loan against PPF can be taken only between 3th and 6th years of PPF account.

For instance, a subscriber who has deposited the maximum allowed limit of Rs. 1.5 lakh for the first four years after account opening will have an account balance of Rs. 6 lakh + interest. Hence, 25% of the account balance, i.e. Rs. 6 lakh + interest earned thereon, can be availed as a PPF loan. Thus, the PPF loan eligibility increases every year.

The 7th year onwards, the subscriber can partially withdraw up to 25% of the available account balance preceding the year in which the loan has been applied. The partial withdrawal is not considered a PPF loan account and, therefore, need not be repaid.

How can I check my PPF loan eligibility?

All PPF subscribers who have an active PPF account are eligible for a loan on the PPF amount. The PPF loan facility can be availed between the 3rd to 6th financial years of PPF account opening. Thereafter, the subscriber can partially withdraw up to 25% of the available account balance preceding the year when the loan has been applied.

Consider the following example to check your PPF loan eligibility:

YearAmount Deposited at the Beginning of the YearAmount on Which Interest Is EarnedRate of InterestInterest AmountBalance At the End of the YearLoan Eligibility
1150,0001500007.1%10650160650Nil
2150,0003106507.1%22056332706Nil
3150,0004827067.1%34272516978Up to Rs. 83177
4150,0006669787.1%47355714334Up to Rs. 129245
5150,0008643347.1%61368925701Up to Rs. 178583
6150,00010757017.1%763751152076Up To Rs. 231425
7150,00013020767.1%924471394524Partial Withdrawal

How to apply for a PPF loan in SBI online?

To apply for a loan against PPF SBI, the subscriber is required to submit the loan against PPF application along with duly filled and signed FORM D.

To download FORM D from SBI, use the link https://retail.onlinesbi.com/sbi/downloads/PPF/FORM-D_(PPF%20LOAN).pdf

Steps to apply for a PPF loan in SBI online:

  • Download the FORM D from the link mentioned above. Take a printout of the same.
  • Fill up the form by providing the required information.
  • Leave the section below ‘For Office Use Only’ empty
  • Submit the form at the SBI home branch.

The bank representative will process your application for a loan on the PPF account SBI. In case no discrepancy surfaces, the loan against PPF will be approved, and the principal amount will be transferred into the SBI-PPF linked bank account.

What will be the tenure of the PPF loan?

The loan on the PPF account has a tenure of 36 months, i.e. repayment of the borrowed amount must be completed within 36 months or three years from the date of loan sanction. The repayment of the principal amount can be made through a lump-sum payment or through two monthly instalments. Likewise, the PPF loan interest calculated at the rate of 1% p.a. of the principal amount is to be paid in two monthly instalments or through a lump sum payment. In case the subscriber fails to repay the PPF loan amount within the stipulated time, an interest rate of 6% is charged till the loan is fully cleared.