### EPF withdrawl for closing Personal Loan

POSTED BY ON April 13, 2012 10:37 pm COMMENTS (10)

I am thinking of closing a personal loan being served at 15.25 % per annum by withdrawing the amount equal to bank outstanding from my EPF. I am not taking loan from EPF but withdraw on non-returnable basis. Since EPF is giving me returns to the tune of 8.5% i think my thinking correct. What is your view on this ?

## 10 replies on this article “EPF withdrawl for closing Personal Loan”

1. Prasoon says:

Did you manage to get the EPF amount to close the personal loan?

If yes,
How old your EPF account was?
what did you mention as reason for the withdrawal?
Is ‘closing a personal loan’ a valid and acceptable reason for 5 year old EPF account?

1. Dear Prasoon, paying of a personal loan is not a valid reason to withdraw your money from EPF.

thanks

Ashal

1. Prasoon says:

🙁 I know Ashal! That’s why just wanted to know from asker that what/how did he proceed.

2. bharat shah says:

@karthik

when one takes loan of rs. 100000/- for 5 yrs with @15.25%, he has to pay EMI of rs.2392/- and thus his outgo would be rs.143520/- (rs.2392/-*60) and then how do you arrive net value of loan as rs.100000- rs.43530/- = rs.56470/- ? how could net value of loan be diminished? and 1 lacs , if stayed in ppf would have become rs. 150366/- if not withdrawn, and not 152730/-. i can’t understand your calculation , making the profit by availing loan as rs.238976/- by opting loan instead of withdrawal from ppf.
my only take is: when you need rs.100000/- for 5 yrs., better withdraw from epf(if feasible) instead of taking loan at@15.25% interest and the installment to be paid for the loan , you credit in epf as additional voluntary contribution. by that way ,you would benefit rs.28962/-. in five years.(the difference of interest earned more in your epf account by crediting the emi, which would have paid for the loan at @15.25%)

3. Karthik says:

Bharat,

Please check if my following calculation is correct.

PPF withdrawal and closing personal loan:
Will have Rs. 2,392 as excess value which can be invested to monthly to get 1,79,328.
Please note, here the principal amount is also invested.

Continuing with personal loan option:
Personal loan – 1 Lakh with 15.25% for 5 yrs. Interest outgo 43,530.
So net value of loan = 1,00,000-43,530 = 56,470
1 Lakhs stays in PPF. Earns interest – 52,730. So total value is 2,09,200 and not only 1,52,730.

Also Please note: The profit of the loan 56,470 is not reinvested here.
If the 56,470 is also added to the PPF. Then the value of interest is 82,506 which comes to 2,38,976

4. bharat shah says:

sorry, i have taken 18% for your loan instead of 15.25%. correct figure for EMI for loan would be rs.2392 instead of rs.2539/- and accordingly the a/m credited in EPF/PPF would be rs.179328/- and benefit rs.29000/- after 5 yrs.

5. bharat shah says:

i differ and think that you will benefit by opting EPF withdrawal for closing personal loan with18%. the calculation is as under:

for rs. 100000/- loan for 5 yrs. at@18% ,you have to pay EMI RS. 2539/- . By opting EPF withdrawl , you can save in EPF that a/m as your contribution ,if admissible or in PPF,WHICH WOULD BECOME rs.190348/- after 5 yrs, whereas you woud get less credit by a/m. rs.150366/- for rs. 100000/- withdrawn. so you would benefit @rs.40000/- in 5 yrs.

Hey Karthik, Thanks for the response. I didn’t pay attention to this. Really need to understand things before undertaking. It was useful for me.

7. Karthik says:

Invest 1 Lakh for 5 yrs with 8.5% in PPF. The returns will be 152730 with interest income of 52730.
Take a loan of 1 Lakh for 5 yrs with 18%. The total interest outgo will be 52350.

n% investment is not equal to n% loan where n is a number.
Hope you understand this..