Personal loan or loan against PPF: Which one to choose?

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Despite your best efforts to budget and account for every penny, you may find yourself in a situation where financial aid is required:

  1. A personal loan is the most common type of loan, and it comes in helpful in times of financial difficulty. It is the product of choice due to factors such as flexibility to use and quick loan processing time.
  2.  A Loan against PPF is another popular option to pay unexpected costs without breaking the bank. You can get credit against the money in your PPF account if you choose this option.

So, if you’re in desperate need of funds, which alternative should you choose? Here’s a rundown to clear things up and help you make informed decisions:

AccessA personal loan can be obtained quickly if you meet specific criteria, such as a good credit score, age, and consistent income whereas from the third to the sixth year after opening a PPF account, you can take out a loan against it.  You are eligible to take the loan only until the sixth year and it takes a long time for the loan to be approved.

Loan Tenure: A personal loan’s repayment period is determined when both parties agree on a specific term when the loan is taken out. A loan against PPF must be repaid within three years or the interest rate will increase by 4% from the existing rate.

Loan Amount– The maximum amount you can borrow from your PPF account is 25% of the balance at the end of the second year prior to the loan application year. This is not the case with personal loans, where the amount you can borrow is determined by your income level, repayment history, and a few other considerations.

Interest rates– Due to the fact that a personal loan is unsecured, the interest rates are extremely high. They might be anywhere from 10% to 20% per year. Any loan accepted against a PPF account will be charged 1% interest, but your PPF account will not generate interest until the loan is repaid. As a result, the effective interest rate is equal to the current interest rate plus 1%.

Therefore, when you only need a small sum for a short period of time, a loan against your PPF is the way to go. When the use case calls for a large sum of money over a long period of time, a personal loan is a preferable option.

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