The fast-spreading coronavirus has stopped the economy. Some people are losing their jobs, while others are surviving on pay cuts or leaving without pay. Bill payments, EMIs, or other day-to-day needs are head-to-head and there are hardly any options to finance the cash crisis.
While the Reserve Bank of India and the government have come forward to bail people out by allowing the EMI moratorium on term loans and the partial withdrawal of the EPFO, it may not be enough for everyone or that not applicable to everyone.
If you are considering borrowing to cover this temporary shortage of funds, you have a cheaper option through which you can borrow as low as 1 percent.
What are the requirements for an easy 1% loan?
The first requirement to apply for the loan is to have a ‘PPF account’. If you have a PPF account, you can apply for a loan at an interest rate of 1%.
However, you are only eligible for it in the third year from the account opening. The loan window closes after the expiration of the sixth year. That means that the loan will be available only between the third and sixth year from the opening of the account.
What is effective ROI?
The effective interest rate is much higher, since PPF investments that are worth the loan amount do not earn interest until the loan is repaid, even though you pay only 1 percent interest on the loan amount .
Earlier this month, the government had reduced the ROI on PPF from 7.9 percent to 7.1 percent. Therefore, if you borrow money from your PPF account now, your effective ROI will be 8.1 (7.1 + 1) percent.
How can I withdraw money from the PPF account?
Note that you can only withdraw 25 percent of the balance in the PPF account at the end of the second year immediately prior to the year in which you apply for the loan.
For example, if you apply for the loan in the current 2020-21 fiscal year, you will receive 25 percent of the balance as of March 31, 2019.
From the seventh year onwards, you can make partial withdrawals from your PPF account.
How can you take loans one after another?
The loan can only be made once a year and you can take the second loan only after you have made the full payment on the first loan.
The application is not dependent on your credit score, nor do borrowers have to pledge any collateral for the PPF loan.
How is the loan repaid?
If payments are not made on time, 6 percent of the outstanding loan is charged. You must repay the principal amount of the loan in 36 months, that is, 3 years.
You must make the full payment at one time, or in monthly installments (2 or more) After the payment of the principal, the interest on the loan must be paid in a maximum of two installments.
How can you request a loan against the PPF account?
Users who have a PPF account can only apply through this method.
- Visit the bank’s website
- Check your loan eligibility
- To apply for the loan, send a Form D to the appropriate bank or post office.
Most banks offer online services for submitting the form. however, in some cases, you may need to visit the local branch. The application (either online or offline) and response time differ depending on the lending bank or post office.
Why ask for a loan in the PPF account?
The Loan Against PPF account is cheaper than any other personal loan, but it should not be a consumer’s first choice. The other limitation of this option is that the loan amount is not necessarily sufficient for many borrowers.
“Taking loans from PPF is not a good idea as the loan amount is limited to smaller amounts due to the fact that you can only borrow 25 percent of the balance in the account and there are restrictions on the year in which can Also, during the loan period, the account does not earn any interest and therefore one will lose the compounded profits and end up with much lower returns, “says Mrin Agarwal, founder of Finsafe India.