Apply for easy loans to pay the bills during confinement: how to apply

The fast-spreading coronavirus has brought the economy to a standstill. Some people lose their jobs, while others survive on pay cuts or unpaid leave. Bill payments, EMIs or other daily necessities are on the line and there are hardly any options to finance the cash crisis.

While the Reserve Bank of India and the government have come forward to rescue individuals by allowing an EMI moratorium on term loans and a partial withdrawal from the EPFO, this may not be enough for all or may not be applicable to all.

If you are planning to take out loans to meet this temporary shortage of funds, you have a cheaper option through which you can take out a loan at just 1%.

What are the conditions for an easy 1% loan?

The first condition for applying for the loan is to have a “PPF account”. If you have a PPF account, you can take out a loan at just 1% interest.

However, you are only entitled to it in the third year since the opening of the account. The loan window closes after the sixth year expires. This means that the loan will only be available between the third and sixth year since the account was opened.

What is an effective return on investment?

The effective interest rate is much higher since the PPF investments matching the loan amount do not earn interest until the loan is repaid, even if you only pay 1% interest on the amount of the loan.

Earlier this month, the government had reduced the return on investment of the PPF from 7.9% to 7.1%. Therefore, if you borrow money from your PPF account now, your effective ROI will be 8.1 (7.1 + 1)%.

How can you withdraw money from PPF account?

Note that you can only withdraw 25% of the PPF account balance at the end of the second year immediately preceding the year in which you apply for the loan.

For example, if you apply for the loan in the current 2020-21 fiscal year, you will receive 25% of the balance as of March 31, 2019.

From the seventh year, you can make partial withdrawals from your PPF account.

How can loans be taken out one after another?

The loan can only be granted once a year and you can only take out the second loan after you have made full repayment of the first loan.

The application does not depend on their credit score, nor do borrowers need to pledge any collateral for the PPF loan.

How is the loan repaid?

If payments are not made on time, 6% is charged on the outstanding loan. You must repay the principal amount of the loan in 36 months or 3 years.

You must make the full payment in one go or in several monthly installments (2 or more). After the payment of the principal, the interest of the loan must be paid in two maximum installments.

How do I apply for a loan on the PPF account?

Users who have a PPF account can only apply through this method.

  • Visit the bank’s website
  • Check your loan eligibility
  • To apply for the loan, submit a Form D to the relevant bank or post office.

Most of the banks provide online facility to submit the form. however, in some cases you may need to travel to the home branch. The application (whether online or offline) and the turnaround time differ depending on the lending bank or post office.

Why take out a loan on the PPF account?

The Loan against PPF account is less expensive than any other personal loan, but it should not be a consumer’s first choice. The other limitation of this option is that the loan amount will not necessarily be sufficient for many borrowers.

“Taking loans from PPF is not a good idea because the loan amount is limited to smaller amounts due to the fact that you can only take a loan of 25% of the account balance and it There are restrictions on the year in which you can Also, during the life of the loan, the account does not earn any interest and therefore one will lose the accrued benefits and end up with much lower returns,” explains Mrin Agarwal, founder of Finsafe India.

Read: Jan Aushadhi Sugam (BPPI) Application: How to Install and Register

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