How to get Loan against PPF (Public Provident Fund)

Earlier I had already written a post about PPF Loan and withdrawal. However, in this post I will explain you about the rules and eligibility of availing loan against PPF (Public Provident Fund).

Before proceeding further, first understand from when you are eligible to withdraw the loan.

1) From when can you avail a loan?

From the third FY onward, you can avail the loan. For example, let us say you opened the account in November 2011. Then the FY for an account opened is 2011-12. You can avail the loan from FY 2014-15 i.e. from 1st April, 2014.

2) Which form you can use to avail a loan?

You have to use Form D to avail loan. Along with this, you also have to submit the passbook.

3) Up to what period you can avail a loan?

You can avail loan up to 6th FY of account opening. Let us say you opened the account in November 2011. Then you can avail loan from FY 2014-15 to FY 2016-17 i.e. up to 31st March, 2017. Because from FY 2017-18 onward, your account will be eligible for withdrawal ONLY.

4) How much can you avail?

You can avail up to 25% of the balance available in an immediate preceding year in which you are applying. For example, let us say you opened the account in November 2011.  You will be eligible to avail loan from 1st April, 2014. The amount eligible for a loan will be 25% balance available in your PPF account as of 31st March, 2014.

5) What will be loan tenure?

The loan repayment tenure will be maximum 36 months or 3 Yrs from the first day of the month following the month in which the loan is sanctioned.

6) Whether you can avail loan from the inactive PPF Account?

You are not allowed to avail loan from an inactive account. You have to activate it and then only based on the above conditions, the loan will be sanctioned.

7) How can you pay loan principal?

You can pay it either in a lump sum or in installments.

8) When can you pay the interest?

You have to repay the interest in two monthly installments after you fully paid the principal amount.

9) How much will the interest chargeable to PPF loan?

It is more than 2% of what you are getting from your PPF investment. Hence, the current rate of interest on PPF is 8.7%. Therefore, the interest rate for a loan on PPF will be 10.7%. PPF loan interest is linked to the interest rate of PPF. So you have to remember that interest on a loan will also change based on the yearly change in PPF. The interest will be chargeable from the first day of the month following the month in which the loan is drawn up to the last day of the month in which the last installment of the loan is repaid

10) What if you did not repay the principal with 36 months?

If you are unable to repay the loan within 36 months, then the interest rate will be hiked to 6% more than what you are getting from PPF on remaining principal balance. For example, the current rate of PPF is 8.7%. Therefore, if you are considered as defaulter for this FY, then the interest rate on remaining loan balance will be 14.7%. If you still don't pay the dues then this outstanding principal and balance will be deducted from your PPF amount at the time of maturity. This additional interest will be chargeable from the first day of the month following the month in which the loan was obtained to the last day of the month in which the loan is finally repaid.

Therefore, keep in mind that if a loan is not repaid then the interest will be more than 6% but not 2% from the initial loan date to till last date. This I think is a hard part to someone who not pay.

11) What if you did not repay the interest?

As I said above, once you repay the principal amount then you have to pay the interest in two monthly installments. If you fail to do so, then the outstanding interest will be deducted from your PPF balance.

Also, do remember that if you apply for withdrawal from 7th year onward then they deduct any outstanding loan and interest amount before making your payment of withdrawal.

12) Who can avail loan for a minor's PPF Account?

A guardian can apply for a minor's PPF Account. However, while writing an application, you have to mention "Certified that the amount for which loan is applied for is required for the use of ……. Who is alive and is still a minor."

13) How often or how many times you can avail a loan?

You are eligible to avail a loan only once in an FY. Even if you repaid the loan within a year, then you are not allowed to take the fresh loan within a same FY. Let us say you took the loan on 13th August, 2015 and repaid the loan on 25th January, 2016. Then you are not allowed to take the fresh loan up to 31st March, 2016. Because, as per rule, only once, you can take the loan in any FY.

14) Loan repayment available for Sec.80C benefit?

Your loan repayment (either principal or interest) will not be eligible for rebate under Sec.80C.

15) Who is liable for loan and interest repayment in case of a death of PPF Account holder?

It is the responsibility of nominee or legal heir to repay the all outstanding. All outstanding to the account will be deducted before the closure of PPF Account.