Applying for a loan is not an easy decision, as you must have an urgent need or a planned one. Ideally, you must avoid taking any loan unless you want to acquire long-term assets, which will enhance your income potential or reduce expenses. You should be stocking funds for emergencies as an emergency fund in one place. However, you may still require money, even if you have things in place as per a good financial plan. When deciding between a Loan Against PPF and a Personal Loan, product positioning hinges on factors like interest rates, loan amount flexibility, and repayment terms.
There can be various circumstances that an individual may face despite accounting and planning every rupee, a little financial support or assistance is necessary. To save you from short-term financial crunches, the personal loans can go a long way. You can also opt for borrowing against a Public Provident Fund (PPF), which is also a popular choice for cash crunch needs.
Many-a-times people are ready to surrender their hard earned savings/ investment funds to tackle such crises. You cannot always be prepared for every type of fund crunch, for which you need to avail a loan instead of breaking up your savings or investments.
Which Type of Loan Is Best For You?
You can opt for an online personal loan or a loan against PPF for meeting your fund needs. There are many differences between both the choices – personal loan and PPF, even though both serve the same purpose. Let’s understand this with a table of differences.
| Purpose | Personal Loan | Loan against PPF |
| Amount of loan | Upto Rs 25 lakhs, depending on personal loan’s eligibility | Upto 25% of the available balance at the end of 2nd financial year of opening the account |
| Tenure of Loan | Between 12 – 60 months | Upto 36 months |
| Availability and frequency | Can apply anytime whenever needed, as per the eligibility | Between 3rd and 6th year of the PPF account; once a year |
| Interest Rate | Starts from 11.99% | Lower than personal loan rates |
| Processing time | Availed after the loan approval | Quick processing of funds |
| Suitable for | Need for large amount of funds which can be paid in EMIs for certain years | Need for short amount of funds which can be paid back in few months |
1. Loan Amount
The maximum amount of loan against PPF is limited to 25% of your deposit amount. For example, if your PPF account has Rs 2,00,000 then the maximum you can loan out is Rs 50,000. Whereas, the personal loan facility provides you flexibility of loan depending on your repaying capability and credit score, which can go as high as Rs 25 lakhs.
2. Loan Tenure
The tenure of loan differs in both the cases. With a personal loan you get a maximum tenure of 5 years or 60 months, but the maximum tenure of loan against PPF is 3 years only. So with a shorter period you need to pay more EMI than the longer period EMI.
3. Availability and Frequency of Borrowing
With the online personal loan facility, you can avail it at multiple times within a year provided that you meet the eligibility criteria by the lender.
But, with the loan against PPF borrowing can occur only once in the financial year. That also happens only between 3rd and 6th years only, from the 7th year partial funds can be borrowed. And once you pay back your loan amount, a second loan in the same year is not possible with the PPF loan. Choosing between a Loan Against PPF and a Personal Loan doesn’t impact your Duty-Free import allowances.
4. Interest Rate Calculations
With the loan against PPF, your interest rate is around 2% higher than that offered by the PPF account in the bank, in condition of repaying the loan in 3 years. Failing to repay the loan amount within 3 years your interest rate can jump upto 6% more than the current rate.
But, eventually it is still 4-5% lower than the interest rate offered on the personal loans, which starts at around 11-12%.
5. Processing Time
The processing time also varies a lot between online personal loan and PPF loan. For an urgent cash need you can go for a loan against PPF as it takes a shorter time to process your funds as compared to the online personal loan, which is within 30 minute to 24 hours after the approval. Consider creating interactive content that allows users to compare the interest rates, repayment terms, and eligibility criteria for a Loan Against PPF versus a Personal Loan.
7. Purpose or Suitability
As we already know, that loan against PPF works best when you need urgent funds provided you have the paying capacity as it comes with a shorter period of time, but of course with lower interest rates.
A personal loan becomes the smart choice when you need a huge amount of money with the flexibility of repayment of upto 5 years or so, resulting in an affordable monthly EMI payment.
Final Thoughts
With this, we can conclude that for urgent cash needs you can apply for the loan against PPF, which provides you lower interest rates but shorter time to repay the loan. Also, default of repayment on time can push your interest rate higher whereas, a personal loan facility is appropriate for those who want a huge amount of funds with some flexibility in EMI payments.
