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If you suddenly need 5 lakh rupees and the option is to withdraw ₹5 lakh from EPF or take a personal loan, then in such a situation it is always necessary to make a decision carefully. Both have their advantages and disadvantages and one wrong decision of yours can cause a loss of lakhs.

Need for money in an emergency.

Everyone can need money in an emergency and at any time. Whenever there is a need for 5 lakh rupees, it is difficult to understand where to take the money. In such a situation, people often withdraw money from PF. At the same time, some people take a personal loan. But have you ever thought that in case of sudden need of money, which one should be resorted to, PF or personal loan?

If there is a need for 5 lakh rupees

Yes, if there is a sudden need for 5 lakh rupees, then it is necessary to make a careful decision before choosing either EPF or a personal loan. The interest rate, advantages, and disadvantages of both are different. A decision taken by you in haste can cause a loss of lakhs.

PF withdrawal or personal loan – which is better?

If you need ₹5 lakh, then there are two major options – withdrawing money from PF or taking a personal loan. Both these options have their advantages and disadvantages, so let's understand in simple language.

1: Withdrawing money from PF
The 8.25% annual interest rate on a Provident Fund (PF) is tax-free and compounded, which makes it a strong long-term savings option. So if you withdraw ₹5 lakh from PF, then you may have to bear the loss of interest of about ₹2.45 lakh in the next 5 years. That is, the amount of ₹5 lakh can become ₹7.45 lakh in 5 years. However, if you withdraw money from PF, you will not have to bear the burden of EMI or loan.

2: Taking a personal loan

On the other hand, if you need ₹5 lakh and take a personal loan for this, then its average interest rate can be around 13% per annum. If you repay this loan in 5 years, your monthly EMI can be around ₹11,400. In total, you will have to pay around ₹6.84 lahks instead of ₹5 lahks, that is, ₹1.84 lakh more than the principal amount will go out of your pocket in the form of interest.

Which is the wise decision?

If you need money immediately, breaking PF or taking a personal loan—which step is wise? You should always take this decision carefully, if you withdraw PF, you will lose ₹2.45 lakh return in the future and this weakens your retirement savings, but this does not lead to the hassle of EMI. On the other hand, a personal loan costs an extra ₹1.84 lakh, but if you cannot pay the EMI, your PF is safe.

Final advice
If the expense is not urgent or can be postponed, avoid a personal loan and withdraw PF partially or wait. Also, if PF is your only savings and you are unable to postpone the expense, then partial PF withdrawal is better than a personal loan. Apart from this, if you have a strong capacity to pay the EMI, and you want to save PF for retirement, then taking a personal loan can be wise.

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