There are so many different types of loans that it can be hard to choose the type of loan which is right for you. Each type of loan is geared to a specific type of borrower keeping their needs in mind. For example, the terms and conditions of a Home Loan are drafted to cater to those who want to buy a house. However, in certain cases, it’s not always so defined. In certain situations, you may be confused between two or three different options.
A lot of borrowers can be confused between a Personal Loan and a loan against Public Provident Fund or Loan Against PPF. What should one choose?
In this article, we’ll cover everything you need to know to make an informed decision.
Before diving into Loans against PPF, let’s understand what PPF is. PPF stands for Public Provident Fund which is a retirement scheme offered by the central government and was launched in 1968.
Essentially, people can commit to placing a percentage of their monthly income into their PPF account. The PPF account will return interest on the saved amount. Thus, by the time they are close to retirement, they have a substantial corpus in their PPF account, which can be used post-retirement.
The maximum you can invest in your PPF account is capped at Rs. 1.5 Lakh. Further, the amount that you contribute to your PPF is tax deductible, making it highly lucrative.
A PPF loan is essentially a loan given to you against your PPF savings/investments. For example, Let’s assume you need Rs. 15 Lakh for home renovation. Suppose you have saved Rs. 15 Lakh in your PPF account over the years. However, lock-in restrictions mean you will be penalized for withdrawing the amount. In this case, you can borrow a sum (lower than Rs. 15 Lakh) secured against your PPF and pay a low amount as interest because the loan is secured.
The PPF Loan interest rate is just 2% more than the interest generated by the PPF account. Hence, it is quite cost-effective.
A Personal Loan is an unsecured loan. An unsecured loan means that you don’t have to provide any collateral (such as property or jewellery) as security for the loan.
A Personal Loan can be availed very quickly. Lenders make the decision of lending to you based on your financial credibility alone. Hence, lenders will check your bank financial statements, your monthly income, your credit score, etc. If you are financially qualified for the loan, then you can avail of a Personal Loan in a matter of hours.
A Personal Loan is usually a quick gateway to accessing instant liquidity. It allows people to borrow relatively smaller amounts without a hassle.
One of the main advantages of a Personal Loan is that it can be used for any purpose. You can use a Personal Loan to pay for your wedding, pay for a medical emergency, renovate your home, or perform home repairs; the list goes on. The lender will never ask you the reason for applying for a Personal Loan.
In this section, let’s understand the advantages and disadvantages of small loans like Personal Loans and Loans against PPFs so that you can make an informed decision.
The maximum loan tenure of a Personal Loan can be higher than the maximum tenure of a Loan against PPF. Usually, the maximum tenure of a Personal Loan is around 5 years while that of a Loan against PPF is just 3 years. Since the tenure of a Personal Loan is longer, this means that the monthly payments or EMI can be relatively lower. It can make it easier to pay off a Personal Loan than a Loan against PPF.
The interest rate of a Personal Loan can be higher than that of a Loan against PPF. The interest rate of a Personal Loan can vary based on loan providers. Your own documents and credit score can make a difference to the interest rate levied. Poonawalla Fincorp provides attractive Personal Loan interest rates starting from 9.99%* p.a.
The interest rate of a Loan against PPF can be as low as 8%* p.a. As mentioned earlier, the interest rate of a Loan against PPF is just 2% higher than the interest yield of the PPF account.
Security or collateral means the asset that you provide to the lender in exchange for the loan. When you provide security, it means that in case you fail to repay the loan, the lender can take ownership and possession of the security.
A Personal Loan does not require any security and is a completely unsecured loan. You can avail of a Personal Loan simply based on your monthly income.
However, a Loan against PPF is a secured loan. The security for the loan is the money that you have in your PPF account. In case you fail to repay the loan, the lender can recover the difference from the money in your PPF account.
It’s obvious that both Personal Loans and Loans against PPF are small loans that have their own pros and cons. While interest rates are higher for Personal Loans, you don’t need to provide security and they can be disbursed quickly. The decision to take either type of loan depends on your circumstances and needs. Overall, a Personal Loan can be more flexible, faster, and hassle-free with a comfortable tenure, whereas a Loan against PPF can be more cost-effective.
*T&C Apply. Interest rates may vary depending on the lender’s policies and prevailing PPF interest rate.
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
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