PPF account holders can avail loan facility in case of cash shortage, if they meet the eligibility requirements.
A PPF account holder is eligible for a loan after the third year of subscription, although this option is only available until the end of the sixth financial year. However, one cannot avail a loan for the full amount. A maximum of 25% of the amount available at the end of the two years immediately preceding the year for which the loan is requested may be borrowed.
According to the SBI FAQ, “Clients can avail the loan facility between the third fiscal year and the sixth fiscal year, i.e. from the third fiscal year until the end of the fifth fiscal year.”
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Interest rate on loan against PPF
The loan from the PPF account has an interest rate 1% above the current interest rate set by the government. If you go to your local PPF branch now to apply for a loan, the interest rate will be 8.1% (the PPF interest rate is 7.1%).
Loan repayment term
The principal of a loan must be repaid in full within 36 months of the month the loan is approved, beginning on the first day of the following month. The principal amount of a loan must be repaid before the end of thirty-six months from the first day of the month following the month in which the loan was sanctioned. Reimbursement can be made in one go or in two or more monthly installments over a period of thirty-six months.
According to the PNB website, “After full repayment of the principal of the loan, interest shall be repayable in not more than two monthly installments at the rate of one percent per annum of the principal for the period commencing on the first day of the month following the month during which the loan is contracted until the last day of the month during which the last installment of the loan is repaid.
In accordance with PPF rules, withdrawals and loans are mutually exclusive. Loans are only available to account holders between the third and sixth year of holding an active account, with partial withdrawals permitted from the seventh year. This implies that you cannot take out a loan after the seventh year and you cannot make withdrawals before the sixth year.
