Personal Loan or Loan against PPF - know which is better!

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A Loan is always a favourable funding option to escape a stressful situation. However, many hesitate to borrow a Loan and prefer delving into their savings, even if they need to reduce their emergency funds. Understanding your Loan requirement, purpose and repayment capacity can make a Loan a lifesaver by helping you meet unforeseen financial circumstances.

Appropriate use of a Loan can make it an excellent tool to manage money and handle emergencies without financial crunch. However, what type of Loan should you borrow when the need arises? The most common options are Personal Loans and a Loan Against PPF. You must learn the specifics of both, to make an informed choice. Continue reading to know all the relevant details about the two Loan types.

What are Personal Loans?

Personal Loans are commonly used credit options with no collateral requirement and no usage restrictions. You may borrow these loans from reputable lending institutions like ICICI Bank at attractive interest rates. Rapid approval, online application, and simple documentation are some features that distinguish them from other loan types. However, the interest rates are sometimes higher based on your credit history, repayment capacity, income stability, and other crucial factors.

You can use a Personal Loan to meet your financial requirements without exhausting your savings. Use a Personal Loan Calculator to determine a loan tenure with budget-friendly EMIs you can repay at your convenience.

What is a Loan Against PPF?

PPF stands for Public Provident Fund, a government-backed investment scheme offering tax-free returns and competitive interest rates. Investing a certain amount each year can benefit from features like credit flexibility, eligibility, and wealth creation. A PPF account has a maturity duration of 15 years, during which it earns interest according to the rate announced by the Ministry of Finance. The PPF compounds and pays interest each year on March 31.

As an investor, you can partially withdraw funds from your PPF account. However, since these accounts have lock-in periods during which you cannot withdraw, borrowing a loan against PPF is still possible. In this sitauation, your loan amount depends on your PPF account balance at the end of the last financial year. These loans have lower interest rates than Personal Loans due to their secured nature.

Understanding the difference between a Personal Loan and a Loan Against PPF

While both types of Loans have pros and cons, you must know these key points of difference between them to make an informed decision.

Loan Amount:

One usually decides to take a Loan when savings are insufficient to meet a financial need. Opting for a Loan that provides an ample amount, is a smarter choice. An ICICI Bank

Personal Loan can provide up to Rs 50 lakh based on your income and repayment capacity.

A Loan Against PPF is restricted to your PPF Account balance. Usually, this amount is not huge unless you have a handsome salary or you have been serving in the job for several years. Hence, an Instant Personal Loan seems to be an apt choice for big-ticket expenses like marriage, foreign travel, higher education, medical emergencies or home renovation.

Interest Rate:

Interest rate is another primary factor that differentiates a Personal Loan from a Loan Against PPF. A Personal Loan is an unsecured Loan with attractive interest rates starting at 10.65% per annum. On the other hand, a PPF Loan charges a much lower interest. However, you will not earn any interest on your PPF savings until you repay the Loan.

Repayment Term:

A longer repayment term would mean smaller EMIs. Using a Personal Loan Calculator, you must choose a tenure with EMIs that you can comfortably afford to pay each month.

A Personal Loan offers a tenure option of 12 to 72 months, making repayment easier according to your affordability. Contrary to that, a Loan Against PPF has a shorter repayment period. If you borrow a huge Loan amount, the EMIs will be bigger and you may find it challenging to repay them on time.

Accessibility:

Depending on your requirements and repayment capacity, you can take out a Personal Loan multiple times a year. However, you can borrow a Loan Against PPF only once a year. Therefore, a Personal Loan is beneficial if you need funds to meet various requirements or additional funds for the same expense.

Application:

Applying for a Personal Loan is a straightforward process that you can complete from the comfort of your home. Simply fill out an online application form and get the required funding directly into your bank account. On the other hand, applying for a PPF Loan is much more complicated and time-consuming, making it a complex funding option during emergencies.

Which is better: A Personal Loan or a PPF Loan?

Now that you have adequate information about both Loan types, opt for a Loan Against PPF under the following circumstances:

• If the PPF Loan interest rate is lower than that of a Personal Loan plan

• If the Loan amount available for borrowing is sufficient for financial requirements

• If you can afford the EMIs of a PPF Loan with a shorter tenure

• If you do not need funds in an emergency and have enough time to arrange the Loan.

On the other hand, borrow a Personal Loan if your financial requirement is urgent or you need a higher Loan amount than the funds available in your PPF Account. Evaluate your options and make an informed choice.

If you need a large sum quickly, a Personal Loan from ICICI Bank would be a better funding option. A PPF Loan is suitable for planned expenses. It is economical when you need smaller amounts at lower interest rates. However, a Personal Loan is most suited for bigger expenses like a wedding, overseas study programme, medical emergency, home renovation or foreign travel. 

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