EPF Advance vs. Personal Loan: Which is Better?

In a time of monetary crisis, all you seek is quick financial support. Given the uncertainty of employment during the pandemic, the need for funds has grown more critical. However, both financial institutions and the government have come up with initiatives and alternatives to help you in such instances. Today, we will look at EPF vs. personal loan, and which one is better in a particular situation.  
 

What is EPF Advance?

 
EPF advances are funds granted to EPF subscribers in the event of a financial emergency such as a medical crisis, educational expenditures, a wedding etc.
 
Owing to the ongoing pandemic, the Indian government has eased the norms for withdrawing funds from the Employees' Provident Fund Organisation (EPFO) account. The move was taken to assist people who have lost their jobs and are experiencing financial hardship.
 
According to the new rules, you are only allowed to withdraw the lower of the following amount:
 

• A maximum of 75% of the accumulated corpus in your PF account.

 

• The amount is equal to your three month's salary. In this context, the meaning of salary is basic salary plus dearness allowance.

 
However, withdrawing funds from your EPF account impacts the wealth you are building for your retirement.

Conditions for Taking Out EPF Advance

According to the EPFO, to be eligible for EPF advance, you must meet the following qualifying criteria:
 

• Individuals who have served for at least 60 months are eligible to withdraw funds for land/house acquisition. In the case of land, the maximum withdrawal limit is 24 times your basic monthly salary including dearness allowances. Whereas in the case of a house, the maximum withdrawal limit goes up to 36 times your basic salary + DA. In both circumstances, the maximum limit is restricted to the total price.

 

• Individuals who have served for at least 84 months are eligible to withdraw funds for marriage or education. In this situation, the maximum EPF personal loan limit is equal to 50% of the employee's EPF contribution.

 

• Persons wishing to withdraw funds a year before retirement must be over the age of 54 years to be eligible for an EPF loan. In this case, the maximum withdrawal restriction is 90% of the accumulated corpus with interest. 

 

• The minimal EPF loan eligibility in the event of a medical emergency is nil. In this case, you may withdraw the lesser of six times your basic monthly salary or the total employee's contribution, including interest. 

 

The EPF Loan Process

If you own an EPFO account and want to withdraw funds from it, you are allowed to do so either online or offline. Download the composite claim form from the UAN portal and fill out the Aadhar/Non-Aadhaar form for the offline process.  On the other hand, the online application can be completed entirely from the UAN website/portal.
 
Also Read: A Step-by-step Guide to Getting Unsecured Personal Loans
 

What is a Personal Loan?

 
Personal loans are unsecured loans that can be used to cover a variety of legitimate objectives. You don't have to inform the lender why you need the money and are free to utilise them whenever and wherever you wish. Some of the common reasons for which people take this loan include medical emergency, home decor, child's education, and wedding. 
 

Conditions for Taking Out a Personal Loan:

To acquire a personal loan, meeting the following qualifying conditions are mandatory:
 

• You must fall within the age group of 21 to 58 years and must hold Indian citizenship.

 

• You must earn at least Rs 15,000 per month, and you must provide documentation such as a salary slip, salary certificate, bank account statement, and ITR document to validate your income.

 

• Since personal loans are collateral-free loans, borrowers must have a solid credit profile.

 

• To fall within the personal loan eligibility criteria, you must not have defaulted on any of your previous loans. 

 

Features of Personal Loan

• Personal loans are available for the maximum amount of Rs 5 lakh.

 

• As a borrower, you are allowed to choose the flexible tenure for the period ranging from 12 months to 60 months.

 

• In case you want to foreclose the loan and save a lot on the interest component, you are allowed to do so after the successful payment of the first 12 months of EMI. However, you need to pay a minor foreclosure fee to do so. The applicable fee is based on the outstanding dues. 

 

Personal Loan Applications Process

Most financial institutions allow borrowers to submit their applications either online or offline these days.
 

Online Process

• Visit the website of your desired lending institution.
• Go to the personal loan section
• Fill in the online form and upload basic documents.
• Submit your application.
• Following the successful evaluation of your details, the loan will be approved shortly.

 
The offline and online personal loan processes are nearly comparable. The same steps must be undertaken offline at the lender's branch as they are online.
 

EPF vs. Personal Loan: Which is Better?

 
Personal loans have many benefits over EPF advances. Withdrawing money from an EPF account implies you are compromising on your retirement savings. Since funds withdrawn from the EPF cannot be redeposited, this might have long-term negative effects. However, when it comes to a personal loan, you have almost complete freedom in terms of usage, repayment term, and more. Furthermore, the terms and conditions, as well as the application process are both quite straightforward. It is not as strict as those of EPF advance.
 

To Conclude

 
Personal loans have a slight edge over EPF advances due to their simplified process and eligibility criteria. However, an EPF loan comes in handy if you are a first-time borrower and don't have a credit history.