If you have a Public Provident Fund (PPF) account that has completed a financial year, you may be able to get a loan against it.
How can you avail a loan?
You can avail loans against your PPF account provided you fulfil certain conditions. A loan can only be taken after the expiry of one fiscal year from the end of the fiscal year in which the initial subscription was made and before the expiry of five fiscals from the end of the fiscal year in which the initial subscription was made. For instance, suppose you made the initial subscription in a PPF account in November 2011 (in the fiscal year 2011-12), you can avail a loan only after March 2013 and before March 2017.
How much can you get?
You can avail a loan amount of up to a maximum of 25% of the balance in your account at the end of the second year immediately preceding the year in which the loan is applied for. For instance, if you apply for a loan in November 2011, you would get 25% of the amount that existed at the end of March 2010.
So if you apply for the loan in the third fiscal year, you can avail a maximum of 25% of the balance available at the end of the first fiscal year. If you opt for a loan in the fourth year, the balance at the end of the second fiscal year would be considered.
Effective interest rate
At present, you can get a loan against PPF at an interest rate of 1% above the rate you receive on PPF. So till the time you are getting 8% on your PPF, the loan will be available at a rate of 9% per annum.
As per the recent decision by the government, the rates for PPF will be revised to 8.6% for the current fiscal. Also, the government decided to raise the loan rate to 2% above the rate you receive on PPF. So the effective rate for the loan would go up to 10.6%.
However, since you receive interest on the accumulated money in the PPF account, the effective interest remains 1% at present and will remain 2% in the future.
Repayment tenor: The principal amount has to be repaid within 36 months. The repayment can be made either in a lump sum or in two or more monthly instalments within the prescribed period of 36 months. Once, the principal is fully repaid, you need to repay the interest in two monthly instalments.
However, if you are unable to repay the full principal amount within 36 months, the interest rate on the balance loan amount would be hiked to 6% above the rate you receive on your PPF. In case you have repaid the principal but not the interest, the interest amount would be debited from your account.