EPF Advance vs Short Term Personal Loan - Which is Better & Why?

The pandemic has changed the global landscape completely. The common man has been significantly impacted by the COVID-19 outbreak. Many have lost jobs, have taken pay cuts, small to large scale establishments have either scaled down operations or in the worst-case scenario have had to shut shop.

Despite the challenges, life has to go on. During this time, a lot of people have re-invented themselves. Many have pursued their hobbies and interests to the extent that they have considered making it a full-time career - like travel blogging, fitness or website design. Many are considering using their own savings or taking a loan to invest in their business. Some people who continue to be salaried have saved a lot during the lockdown, and are now looking to invest in real estate. Such people are also looking for suitable loans in order to bridge the gap.

What are the Loan Options Available?

To cater to your immediate financial needs, you have the option to choose between an EPF Advance vs Short-Term Personal Loan.

Let us first understand the difference between these two loans.

What is an EPF Advance?

The Government of India has taken proactive steps to make withdrawals from the Employer’s Provident Fund or EPF accounts much more convenient. According to the updated guidelines, EPFO subscribers will be able to withdraw a sum that combines their Basic + DA (dearness allowance) component up to three months’ salary or up to 75% of their accumulated corpus through the non-refundable EPF advance facility. This will apply to whichever is lower.

The EPF Advance facility helps individuals gain immediate access to funds in their times of financial need. However, taking out funds from your EPF accounts basically means that you are diluting your retirement savings. Moreover, a withdrawal from this account impacts the compounding effect. This is the most significant advantage that you gain from your EPF account that helps to multiply your corpus in the long term. Taking funds out of this account diminishes the returns over a period of time.

That said, when there is a financial crisis, you may consider the EPF Advance facility as an option to cater to your short term financial needs.

Must Read: Personal Loan Rules, Terms & Conditions

What is a Short Term Personal Loan?

If you do not wish to touch your EPF, then you may consider a short term personal loan as an alternative way to meet your financial needs.

A personal loan is an unsecured loan that can be availed by individuals from a bank or a non-banking financial institution such as Fullerton India. Since personal loans do not require collateral or security and are therefore categorized as high risk by lenders. Generally, the interest rates too are on the higher side because of this very reason. This helps lenders offset some of the risk quotients on the personal loan.

Having said that, personal loans require minimal documentation and in most cases are disbursed shortly after final approval. Applicants simply need to check Personal Loan eligibility to determine if they can at all make a loan application with their preferred lending partner.

You can also find out the loan installment figure with the help of the Personal Loan calculator that is available on the Fullerton India website. This helps prospective borrowers to manage their monthly financial obligations better.

Must Read: How to Apply for a Personal Loan Online?

It is not an ideal situation when you have to consider external funding options to meet your short term financial needs. However, when it comes to deciding between the EPF Advance vs short term personal loan, the latter commands a marginal upper hand if you have had to take a pay cut, or have existing debts. But for the rest, a personal loan is a clear choice. One does not need to worry about a heavy repayment figure as you can avail of the benefit of a 12 to 60 month repayment tenure.

Once the impact of the pandemic wades away, you will be in more control of your finances and your overall economic condition. A personal loan in the short term, therefore, will ensure you get the funds you need while keeping your savings intact, and by making regular, timely repayment of EMIs in full will ensure that your debt will be repaid within the agreed-upon time period.

The EPF Advance facility works out well for anyone who has lost employment and/or does not wish to take on additional debt. Moreover, if you need instant cash in hand, EPF withdrawals are quick, and you can replenish your account without having to pay a high rate of interest.

In Conclusion

The pandemic and the lockdown was hard, but it gave many of us a new outlook and revised goals. However, the economy is still recovering, and so far the government has advised everyone to continue being cautious. Under such circumstances, borrowing from your EPF account or taking out a personal loan is among the best means to accomplish your goals.