Loan against PPF vs personal loan: Key differences and benefits explained
Borrowers must understand the risks of personal loans, including high interest rates and potential credit damage. PPF loans are a more affordable option for short-term needs, while personal loans offer larger sums for various expenses.
To meet expenses this Diwali, aspiring borrowers have several different loan options. Two of the same are PPF-based loans and personal loans. PPF-based loans are secured, low-interest, and limited to 25% of the PPF balance. A personal loan, on the other hand, is unsecured and based on the borrower’s creditworthiness.
Furthermore, personal loans are ideal for larger financial needs, such as weddings, travel, education, and medical surgeries, with no restrictions on the usage of the borrowed funds.
Loan against PPF vs personal loan
| Feature | Loan against PPF | Personal loans |
|---|---|---|
| Loan amount | Up to 25% of PPF balance | Based on credit score & income |
| Interest rate | Generally 1-2% above PPF rate (~7.1%) | Starting at 9.99% per annum from leading banks. |
| Collateral | Secured by PPF balance | Unsecured in nature |
| Repayment tenure | Up to 36 months | 12 to 60 months. It provides borrowers with more flexibility. |
| Number of loans/ year | Once per financial year | Multiple loans can be availed per year, depending on one’s credit score and repayment potential |
| Impact on PPF balance | Continues to earn interest if the loan is repaid timely. | No impact |
| Usage restriction | No major restrictions | No restrictions |
| Processing time | Longer, more formal process | Fast disbursal online, provided eligibility conditions are met. |
Note: The differences and features of loans against PPF and personal loans discussed above are for illustrative purposes. For the most up-to-date interest rates, terms, and conditions, please refer to the official website of the respective lending institution.
What are the risks of personal loans?
As a prudent borrower, before selecting a personal loan product, it is essential to clearly understand and acknowledge the risks and limitations associated with loans.
High interest costs, risks to collateral, implications for credit scores, and the possibility of damage to credit profiles if repayment isn’t made on time, as well as the potential for debt build-ups and psychological problems, are just some of the associated limitations that the borrower should definitely understand and consider before applying for a personal loan.
In conclusion, the loan against PPF is a more affordable borrowing option that can provide borrowers with modest amounts and help them meet their short-term obligations. Whereas personal loans provide higher ease and flexibility. They provide borrowers with larger sums at higher interest rates but with quicker access.
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