Personal Loan vs EPF Advance: Differences Explained

Last Updated: 14 Oct 2024

Personal loans and EPF advances are two of the most common financial solutions for individuals in need of immediate funds. Both offer a lifeline at times of financial stress and crisis. But each entertains their individual considerations and characteristics. Personal loans offer immediate access to borrowed funds, while, on the other hand, EPF advance allows individuals to withdraw their own retirement savings partially.

If you are doubtful about which one to consider as your best financial solution for individual circumstances, here’s a detailed guide. This article will delve deep into the nature of personal loan vs EPF advance, their characteristics and the key differences between the both. This will offer you a detailed understanding of which one to choose that would align with your financial capability and goals.

What Is A Personal Loan?

A personal loan is a type of unsecured loan that is offered by various financial institutions such as banks, online lenders, and credit unions for the purpose of personal expenses.

Unlike purpose-specific loans such as auto loans, and mortgage loans, the use of personal loans is not subject to restriction. It may be used for home improvements, medical expenses, travel, and debt consolidation, among many more.

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To know more about the nature of personal loans, let’s take a look at some of the key characteristics:

• Personal loans or unsecured loans which don’t require any collateral and are graded primarily on the basis of the creditworthiness of the borrower and their ability to repay.
• Personal loans are fixed-amount loans, and the borrower is required to specify the loan amount during application. On approval, a lump sum amount is deposited into the bank account of the borrower.
• Personal loans entertain a fixed rate of interest, which means that there is no change in the interest rate throughout the loan term. Borrowers also get to choose a convenient term for repayment.
• Individuals can entertain flexibility in using the fund for a number of purposes as long as it aligns with the lender’s terms and conditions. One can address immediate financial needs with personal loans.

What Is An EPF Advance?

An EPF advance revolves around the option of initiating a partial withdrawal or loan against the total accumulated funds in the Employee Provident Fund (EPF) account of an individual. EPF is a government-mandated scheme for retirement savings in which both the employers and the employees contribute a portion of the employee’s salary for the purpose of building a lump sum retirement fund.

EPF(Employee Provident Fund) advances entertain certain key characteristics that are essential for securing a deep understanding of the concept; these are:

• Individuals can make partial withdrawals from EPF accounts under certain circumstances.
• EPF also allows individuals to opt for a loan instead of withdrawing a certain amount.
• EPF advances entertain certain criteria for eligibility and have specific limits set by the authority.
• The amount borrowed needs to be repaid within a fixed period in the form of regular monthly instalments.

Personal Loan Vs EPF advance

As you are now aware of the key characteristics of both EPF Advance and personal loan, you may wonder – is Advance better than a personal loan? In order to explore this, knowing the key differences between the two is essential to determine which one serves as the best option for you. Here are the main differences concerning personal loans vs EPF advance.

Source Of Funds:

Personal funds are typically borrowed funds that are provided by credit unions, online lenders or banks. On the other hand, EPF advance revolves around accessing a certain portion of savings in the EPF fund of an individual. The contribution to the EPF fund is made by both the employer and the employee.

Mode Of Repayment:

For personal loans, a regular monthly repayment is agreed upon over a fixed term. Such repayments include both the borrowed amount as well as the interest. At the same time, EPF advances come with different terms of repayment depending on the specific rules and regulations set by the authority of the EPF. EPF advance repayment is typically deducted from future EPF contributions or in instalments within a specific period.

Eligibility Criteria:

A credit check is typically required for personal loans along with several others, like verification of income and alignment with specific criteria set by the lender. In contrast, EPF advances come with their own eligibility criteria, which may depend on the length of membership in the EPF scheme, the purpose, and certain rules outlined by EPF authority.

Impact On Savings For Retirement:

Personal loans don’t have any impact on retirement savings as their criteria are much different from that of an EPF account. But EPF advances reduce the total amount of usable funds available in the EPF account. This affects the size of the retirement corpus as well as the potential for its growth in the long run.

Purpose And Flexibility:

Individuals may gain flexibility in the loan amount terms, usage as well as purpose. But the use of EPF advances is limited to specific purposes as defined by the authority of the scheme, like, education, medical expense or housing among many more.

Rate Of Interest:

The personal loan interest rates is determined by the lender. The rates are variable as they are based on various factors like loan terms and creditworthiness, among many more. EPF advances don’t charge any interest but may involve administrative charges or fees.

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Conclusion:

To sum up, it is essential to consider the key differences and choose the one that will align with your purpose, eligibility criteria and repayment ability. You can also consider consulting a financial advisor for more practical guidance based on your individual circumstances and financial goals.