Different types of borrowing options are available in the financial world. If you need some extra money, go for the two popular choices: Personal loans and Loans against PPF (public provident Fund). Both have pros and cons; choosing the right option is based on your specific financial need and situation.
Here, are the differences between Personal Loans and Loans Against PPF in simple terms. This way, you’ll have a clearer picture of which option might be best for you when you’re considering borrowing money.
What is a Personal loan?
Personal loans are offered by Non-Banking Financial Companies (NBFCs). A personal loan is a type of loan that you can use for almost any personal financial need. It can be combining debt, covering medical expenses, Travelling, Weddings, making home improvements, or funding a major purchase, a personal loan can provide you with the money you need.
Also, Read: Personal loan balance transfer
What are loans against PPF?
One sort of loan where you can borrow money using the balance in your PPF account as collateral is a Loan Against PPF (Public Provident Fund) loan. PPF account holders can choose this option, which has several special features and advantages.
Understanding the Difference Between a Personal Loan and a Loan Against PPF
| Basis | Personal Loan | Loan against PPF |
| Loan amount | It depends on income and creditworthiness, a higher | PPF balance is limited up to 25% |
| Interest rate | Higher and it is unsecured | Lower, secured against PPF balance |
| Repayment terms | Adaptable, 1 to 5 years | Fixed, It should be rapid within 3 years |
| Accessibility | It is based on income and Credit score | Available to PPF account holders (3 to 6 years) |
| Application | income proof, identity documents | PPF Account details, The Application is simpler |
Which one should you choose: A Personal Loan or a PPF Loan?
For choosing between a Personal Loan and a Loan Against PPF depends on your specific financial situation and requirements. Personal loans offer dynamic ways to use your borrowed money- Whether it is for emergency purposes, a wedding, starting your own small business, home improvements or other personal expenses. It typically allows for higher loan amounts and quicker access to funds, making it suitable for urgent financial needs. Also, it often comes with a higher interest rate. If you need a personal loan you have a good credit score to secure a loan in favourable terms.
On the other side, A loan Against PPF provides a lower-cost borrowing option it is secured against the balance in your PPF Account. Compared to personal loans it provides you with a lower interest rate. It’s limited in terms of the amount you can borrow (up to 25% of your PPF balance). Ultimately, the choice between these two options should consider your immediate financial needs, the amount required, and your ability to manage repayments effectively.
Eligibility Criteria for Loans Against PPF and Personal Loans
Loans Against PPF
- Maintain an Active PPF Account: You must have an active Public Provident Fund (PPF) account with a minimal balance. Public Provident Fund requires an active account
- Time of loan: Loans against PPF can usually be availed between the 3rd and 6th year after starting the PPF account.
PPF Balance: the maximum loan amount is limited to 25% of the PPF account balance after the second year before the application year.
Personal Loans
- Good Credit Score: For a personal loan one of the factors is a good Credit score to qualify for a Personal Loan with favourable terms.
- Stable Income: You need to show a stable source of income to ensure you can repay the loan in a timely
- Age Criteria: The age range of personal loans is between 21 to 65
- Documents required: identity proof, address proof, income proof (like salary slips or tax returns), and sometimes bank statements.
Impact on Credit Score: Loans Against PPF vs Personal Loans
Loans Against PPF
Obtaining a loan against your PPF (Public Provident Fund) does not have a direct impact on your credit score because PPF loans are secured against the balance in your PPF Account it is not based on creditworthiness. It is not going to affect your credit score if you repay your loan timely.
Personal Loans
On the other hand, can significantly impact your credit score depending on how you manage personal loans:
- Positive Impact: Timely payment boost and increase your credit score,
- Negative Impact. Missing payments or delays in payments on personal loans can decrease your credit score. If this happens, lenders report your loan status to bureaus, and this will affect your creditworthiness negatively.
Making the Right Choice: Factors to Consider When choosing Between a PPF Loan and a Personal Loan
- Personal Loan: Best for larger amounts, quicker access, flexible usage, and terms, but comes with higher interest rates and impacts your credit score.
- PPF Loan: Ideal for smaller, low-interest loans, doesn’t affect your credit score, but is slower to process and has specific eligibility criteria.
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