Can EPF Money Help Settle Your Loans? Things to Consider Before You Withdraw

Many can think about withdrawing money from their PF account to repay the loans, but we need to wait and think before we take action. Firstly, it will drain your savings and then add up to the cost of your pocket. The practice can be seen as easy and comfortable, but it has disadvantages. In this article we are going to learn about the pros and cons of the PF withdrawal for loan repayments.

It can have advantages, like it will reduce the loan burden, but, technically, you can withdraw some percentage before retirement. Most importantly, it’s for your retirement corpus, not any surplus. The surplus you can only have from your income and thus it is very important to understand. Some reports also suggest that it might be okay with home loans but not for personal loans, as it has higher interest rates.

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The Employees’ Provident Fund Organization (EPFO) states that withdrawals from EPF are intentionally restricted to safeguard this retirement fund. According to EPF regulations, you cannot use your money to pay off general debt, like credit card bills or personal loans. The EPF Scheme, 1952, only permits withdrawals for the purpose of repaying housing loans under certain circumstances.

Withdrawing a small portion from the loan is fine, but a long-term habit can make you financially weak day by day. So, we need to check the interest rate math, the income during this period. Still depends on many circumstances.

Consequently, the main function of the EPF is to serve as a vehicle for long-term retirement savings rather than a fund for paying off loans in general.

Point to be noted: 

The mandatory, long-term retirement savings vehicle is the EPF. The interest on both employer and employee contributions, which is about 8.25% annually, increases over time. Importantly, these returns are tax-free, making EPF one of the most effective and safe ways for salaried individuals to accumulate wealth.

(Disclaimer: Given the input is on an information basis, please seek professional advice.)