The COVID-19 pandemic has severely impacted employment across various sectors, leaving many people facing unexpected financial challenges. Some have experienced pay cuts, while others have lost their jobs without warning. In response to this crisis, the Employees’ Provident Fund Organisation (EPFO) has loosened its withdrawal rules, aiming to support employees in financial need.
When people require financial help, they often consider taking out a personal loan or borrowing from their EPF. If an individual lacks emergency savings or investments, these are their two main options. However, both have drawbacks: personal loans tend to come with high-interest rates, and withdrawing from the EPF could undermine retirement savings. This article explores which option might suit you best.
EPF Advance:
The EPF advance is now available as a non-refundable option, allowing individuals to withdraw up to 75% of their savings or an amount equivalent to three months of their Basic + Dearness Allowance, whichever is smaller. This can be accessed easily due to reduced restrictions.
Experts warn against withdrawing from your EPF, as keeping the funds there longer generates more compounded interest, benefiting your retirement savings. However, in urgent situations, this could be considered.
Personal Loan:
A short-term personal loan can help meet immediate financial needs. However, they carry high-interest rates since they’re unsecured, and you need a good credit score to get better rates. If opting for this, ensure you have the necessary documents ready, and use an online EMI calculator to assess repayment plans. One downside is that these loans often don’t allow partial repayments, leading to a higher total cost.
Personal Loan vs. EPF Advance:
The EPF advance generally edges out personal loans due to the high-interest rates the latter carries. EPF provides an 8.5% annual interest rate, much lower than the 10%-18% rates of personal loans or 18%-42% of credit card loans. In medical emergencies, EPF withdrawals offer a quicker solution and avoid high-interest costs. If you’ve lost your job, the EPF advance can help manage
