Loan Against PPF vs Personal Loan – Which is Better?

The Public Provident Fund (PPF) is not just a long-term savings option but also allows you to take a loan against your balance. Many investors compare this with a regular personal loan to decide which option is better during emergencies. Here’s a complete comparison of Loan Against PPF vs Personal Loan.

Loan Against PPF – Key Features

• You can avail a loan from the 3rd to 6th financial year of your PPF account.
• Loan amount can be up to 25% of the balance at the end of the 2nd year preceding the year of application.
• Interest rate: PPF loan rate = PPF interest rate + 1% (currently ~8.1%).
• Loan must be repaid within 36 months.
• If not repaid, interest increases to 2% above PPF interest rate.
• No need for credit score checks or income proof, since the loan is secured against your own PPF balance.

Example: If your balance was ₹2 lakh at the end of FY 2022, you can take up to 25% = ₹50,000 loan in FY 2024.

Personal Loan – Key Features

• Offered by banks and NBFCs without collateral.
• Loan amount depends on income, credit score, and repayment capacity.
• Interest rate: Usually between 10% to 20% p.a.
• Repayment tenure: 12 months to 5 years.
• Faster disbursal but requires documents like salary slips, bank statements, and credit score check.

Example: If you take a ₹50,000 personal loan at 14% interest for 3 years, your EMI will be ~₹1,707, and total interest paid will be ~₹11,500.

Loan Against PPF vs Personal Loan – Key Differences

Feature	Loan Against PPF	Personal Loan
Eligibility	Available from 3rd to 6th year of PPF	Based on income & credit score
Loan Amount	Up to 25% of PPF balance (end of 2nd year)	Depends on salary, profile, credit history
Interest Rate	PPF rate + 1% (currently ~8.1%)	10% to 20% (varies by bank/NBFC)
Tenure	Up to 36 months	12 to 60 months
Credit Score Needed	No	Yes
Processing Time	Linked to PPF account, quick approval	Quick disbursal but requires checks
Penalty	Higher interest (PPF + 2%) if default	Late payment fees & higher interest
Account Status	PPF account continues	Not linked to savings scheme
Best For	Small, short-term needs	Larger amounts and longer tenure

Which is Better – Loan Against PPF or Personal Loan?

• Loan Against PPF is better if:
  • You need a small loan (limited to 25% of balance).
  • You want a lower interest rate compared to personal loans.
  • You want to avoid credit score checks.
• Personal Loan is better if:
  • You need a higher loan amount (since PPF loan limit is low).
  • You want a longer repayment tenure (up to 5 years).
  • Your PPF account is beyond the 6th year (when PPF loan is not available).

In short: PPF loan is cheaper but limited. Personal loan is costlier but flexible.

FAQs on Loan Against PPF vs Personal Loan

Q1. Can I take a loan against PPF anytime?

No, only from the 3rd to 6th year of account opening.

Q2. What is the maximum loan against PPF?

Up to 25% of the balance at the end of the 2nd year preceding the loan year.

Q3. Which has lower interest – PPF loan or personal loan?

PPF loan is cheaper (~8.1%) compared to personal loans (10–20%).

Q4. Can I take both PPF loan and personal loan?

Yes, but it depends on your needs. PPF loan is limited in amount, while personal loans can cover larger expenses.

Q5. What happens if I don’t repay the PPF loan?

Unpaid loan will be charged PPF rate + 2% interest until repayment.

Both loan options serve different purposes:

• Choose loan against PPF if you need a small, low-cost loan during the early years of your PPF account.
• Choose a personal loan if you need a larger amount or longer repayment flexibility.

By understanding both options, you can decide which suits your financial situation better.