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EPF Loan vs Personal Loan: Which Loan is Better and Why?

July 01, 2023 • 1438 views

Confused between EPF Advance and Personal Loan? Although both offer several benefits, it becomes mandatory to choose the one that perfectly caters to your borrowing needs. Go through this guide to explore the differences and advantages of each option and make the best financial decisions.

What is an EPF Personal Loan?

Employee Provident Fund (EPF) is a retirement savings scheme where a portion of an employee's salary is contributed to an EPF account. An EPF Personal Loan allows individuals to borrow against their EPF savings.
With an EPF Personal Loan, individuals can access a portion of their accumulated EPF balance as a loan to meet any immediate financial needs. The loan amount is typically determined based on the available EPF balance and the loan repayment is deducted from the EPF contributions made by the employee.

Eligibility Criteria for Taking Out EPF Advance

The eligibility criteria for taking out an EPF advance vary depending on the specific rules and regulations set by the country's EPF authority. Generally, there are certain common requirements to be eligible for an EPF advance. These may include:

  • Active EPF account with sufficient balance.
  • Meeting the minimum service period requirement.
  • Specific purpose for the EPF advance (e.g., education, medical expenses, home purchase, marriage).
  • Compliance with country-specific eligibility conditions (e.g., years of service, age).
  • Adherence to the guidelines and regulations set by the respective EPF authority.

Step-by-Step Process to Apply for EPF Advance

Applying for an EPF advance involves the following process:

  • Determine Eligibility

Check if you meet the eligibility criteria set by the EPF authority, such as minimum service period and purpose.

  • Collect Required Documents

Gather necessary documents, including identification proof, EPF account details, and supporting documents for the specific purpose of the advance.

  • Fill Out the Application Form

Obtain the EPF advance application form from the EPF office or website and complete it accurately with the required information.

  • Submit the Application

Submit the filled application form along with the supporting documents to the EPF office through the designated channels, such as online submission or in-person submission.

  • Await Approval

The EPF authority will review your application and notify you of the approval status. If approved, the advance amount will be disbursed to your designated account.
It is important to follow the specific guidelines and procedures outlined by the EPF authority to ensure a smooth application process.

What is a Personal Loan?

A Personal Loan is a loan provided by financial institutions like Non-Banking Financial Companies (NBFCs) for personal use. It is usually unsecured, which means it does not require collateral. People use the Personal Loan amount for various purposes, like medical emergencies, higher education, travel, or home renovation. The loan amount, interest rate, and repayment terms depend on factors like your creditworthiness and income.

Eligibility Criteria for Taking Out Personal Loan

The eligibility criteria for a Personal Loan usually include the following:

  • Age

The minimum age requirement to be eligible for a Personal Loan varies between lenders. Some financial institutions like Poonawalla Fincorp have a minimum age criterion of 22 years and a maximum of 57 years.

  • Income

Lenders assess an individual's income to ensure they can repay the loan. A stable source of income is usually required.

  • Credit History

A good CIBIL score improves the chances of loan approval. Lenders review credit reports to evaluate an applicant's creditworthiness and repayment history.

  • Employment Status

Salaried individuals with a steady income are usually preferred by lenders.

  • Debt-to-Income Ratio

Lenders consider the borrower's existing debts and financial obligations to determine their ability to manage additional loan payments.
Meeting these eligibility criteria increases your likelihood of obtaining a Personal Loan.

ALSO READ :- Top Advantages of Applying Online for a Personal Loan

What is the Personal Loan Application Process?

The step-by-step process to apply for a Personal Loan typically involves the following:

  • Research and Compare Lenders

Begin by researching different lenders and their loan offerings. Compare interest rates, terms, fees, and eligibility criteria to find the most suitable option.

  • Check Eligibility

Review the eligibility criteria for personal loan set by the chosen lender to determine if you meet the requirements regarding age, income, credit score, and employment status.

  • Gather Required Documents

Prepare the necessary documents, such as identification proof, income proof, bank statements, and address proof.

  • Submit The Application

Complete the application form provided by the lender, either online or in person. Fill in accurate information and attach the required documents.

  • Await Approval

The lender will review your application and documents. This process may take a few days to weeks, depending on the lender's turnaround time.

  • Loan Approval and Disbursal

If your application is approved, the lender will provide a loan offer. Always review the loan terms and conditions carefully before acceptance. Once accepted, the loan amount will be disbursed to your bank account.
It's essential to understand the terms and conditions, personal loan interest rates, repayment options, and any associated fees before finalising the loan agreement.

EPF Advance Vs Personal Loan – Which is the Better Option?

The following table gives a comparison of EPF Advance vs Personal Loan:

Criteria

EPF Advance

 Personal Loan

Source of Funds

Withdrawal from EPF account.

Borrowed from a lender.

Eligibility Criteria

Must be an EPF member and meet specific EPF guidelines.

Varies by lender, typically based on income, credit score, employment status, and age.

Loan Amount

Limited to a specific percentage of EPF balance.

Varies based on the lender and borrower's eligibility.

Interest Rate

Lower interest rate set by EPF.

Varies by lender and borrower's creditworthiness.

Repayment Terms

Repaid through automatic salary deductions.

Monthly instalments over a specified loan term.

Processing Time

Generally faster processing time.

Processing time depends on the lender's procedures.

Flexibility

Limited flexibility in terms of loan amount and repayment options.

Flexible loan amount and repayment options depending on the lender's offerings.

Purpose

Primarily for specific purposes like housing, education, and medical expenses.

Can be used for various purposes as per borrower's discretion.

Credit Check

No credit check is required.

Credit checks are typically required by lenders.

Availability

Limited availability based on EPF rules and eligibility.

Wider availability based on lender's policies and eligibility.

To Conclude

Whether you are considering an EPF Advance or a Personal Loan, understanding their features will help you make an informed decision for your financial needs. Choosing between these two options depends on your individual needs, eligibility, and preferences. However, when applying for any type of loan consider contacting a trustworthy lender like Poonawalla Fincorp.

Frequently Asked Questions About EPF Loan & Personal Loan

1.    Is EPF Advance Better than a Personal Loan?
Deciding between an EPF advance and a Personal Loan relies on your financial situation and the reason for needing the loan. If you have an active EPF account and seek a lower-interest-rate loan, an EPF advance might be more suitable. On the other hand, if you lack an active EPF account or require a higher loan amount, a Personal Loan could be a better choice.

2.    What are the conditions for taking out EPF advance or the loan against EPF?
The conditions for taking out EPF advance are that you can use these funds for purposes like construction of a house, repayment of current mortgage, high school education expenses, wedding expenses, etc.

3.    What are the circumstances that would allow an employee to withdraw their EPF balance?
The circumstances that would allow an employee to withdraw their EPF balance include resignation, retirement, medical emergency, unemployment, etc.

4.    What is a Short-term Personal Loan?
A Short Term Personal Loan is a kind of Personal Loan that is granted for a brief period, usually ranging from one month to a year. These loans are helpful for individuals who may face difficulties securing longer-term loans due to various reasons, such as a low credit score or not meeting the lender’s eligibility criteria.

5.    What are the conditions for taking out a short-term Personal Loan?
To take out a Short-term Personal Loan, you have to be 25 years old, and your credit score must be 750 or above. You should also have a minimum monthly income as specified by the lender.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Personal Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

We are a team of expert writers and editors passionate about providing our readers with authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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