Emergency expenses mostly strike without notice, regardless of whether the month is beginning or ending. So, what are the options if you need money quickly at the end of the month but your paycheck isn't due for another 4-5 days? Worse still, what if this is a cost that cannot be postponed? Of course, getting an emergency fund is ideal, but not everyone prepares ahead of time. It is a reasonably smooth affair if one has diligently managed an emergency fund, But, luckily, even if one does not have an emergency fund and runs out of money a few days before their next paycheck arrives, a payday loan, also known as an early salary loan or an instant loan, is an option
What are Payday Loans?
A payday loan, or more accurately, an instant loan, is a loan that is disbursed immediately, has a very short term, and is an unsecured borrowing option. The basic idea behind these loans is that since the borrower is salaried, he or she will be able to repay the loan as soon as the net paycheck arrives. A payday loan has interest rates attached to it, much like every other form of a loan. The annual percentage rate, or APR, is a term used to describe these interest rates. Though the rate varies by state and lender, there is a limit on the maximum APRs that a lender can charge instant loan applicants on a national level. Those with lower credit scores and lower-income are generally charged higher rates because they are deemed higher-risk borrowers. Payday loans, on the other hand, have higher interest rates than a regular personal loan from a bank, according to the rule of thumb.
Payday Loans Have a Few Advantages
Before you apply for a payday loan, you can familiarise yourself with the following features:
- Customers may take out a small loan with a limited repayment period under these schemes.
- Payday loans must be repaid on the next day after earning a paycheck or benefits from another source, such as social security or a pension.
- The repayment period for payday loans normally lasts between two and four weeks, depending on when the loan was taken out. The payday loan agreement released by the lender specifies the date by which the loan must be fully repaid.
- The money from this scheme will be given to the borrower in the form of cash, a prepaid credit card, or a check that will be electronically deposited into his or her account.
- Payday loans normally have fast loan approval and processing process.
- The majority of payday loan lenders do not search the applicant's credit history.
- When it comes to the conditions for applying for this loan, most lenders do not have a strict policy.
- Since this is an unsecured loan, the customer is not required to have a guarantor or collateral as insurance to receive credit.
- In most cases, a payday loan lender would not check to see whether the borrower can repay the loan while still fulfilling his or her other financial obligations.
- The risk associated with these loans is extremely high because they do not need any collateral or guarantor. As a result, the interest rates on these loans are typically very high.
Payday Loan Eligibility Requirements
Although the conditions for applying for this loan differ by lender, there are a few universal eligibility standards that must be met regardless of lender. Learn about the following eligibility requirements for the loans mentioned below:
- The creditor must be at least 18 years old.
- The customer must be an Indian national. With a full-time job, the worker must have a stable source of income.
- The creditor must have a current account that is open and active.
- To apply for this loan, the borrower must have all of the necessary documentation.
- A customer's phone number must be active.
Documents Required for a Payday Loan Application
- PAN card, Aadhaar Card, Driving License, Voters ID, Passport, and other forms of identificationAadhaar card, passport, voter's ID, driver's license, ration card, utility bills, etc. are examples of proof of address.
- Letter from the employer with proof of profits
- Photographs the size of a passport
How to avail a Payday Loan?
To apply for these loans, follow the steps outlined below:
- Step 1: Get the form from the lender's nearest branch or via its online portal.
- Step 2: Complete the form with all necessary information and send it to the lender.
- Step 3: Send all necessary documentation as defined by the lending institution.
- Step 4: Wait for the lender to approve the loan.
- Step 5: After the loan application has been accepted, the customer will be asked to submit all relevant documentation.
- Step 6: Include all of the documentation required by the lender, including proof of income, name, age, address, and a letter from the employer.
- Step 7: The funds will be credited to your bank account until the records have been checked.
Benefits of Payday Loans
If you're thinking of taking out a payday loan, you should first read about the main advantages of this type of loan.
- When opposed to every other form of loan, the application and approval process for a payday loan is very straightforward and hassle-free.
- If all of the relevant documents are in order and the customer passes the lender's fast verification process, these loans can be disbursed in as little as 24 hours from the time the loan application is submitted. As a result, these loans are often referred to as fast cash loans.
- Even though payday loans have one of the highest annual percentage rates (APR) among various types of loans, if repaid on time, they can end up being less costly in the long run than many other conventional loans.
- Customers can use this loan to pay their bills and other household expenses even though their monthly salary has been depleted. This will save them money on fees like bounced checks, late credit card payments, and late mortgage payments, among other items.
- Customers with a poor credit score or a lost credit report may also apply for these loans.
- To get a payday loan, you don't need any collateral or a guarantor.
- This form of loan allows the borrower to maintain independence by providing immediate cash when he or she is in need.
- Customers may use payday loans to get through any financial emergency.
- Borrowers may apply for this loan even though they have multiple active loans, and their credit score will not be affected.
Payday Loans Have Some Drawbacks
- Payday loans are not well-suited for a financial crisis that is likely to last several months or longer because they are only available for a brief period. The borrower must have a steady stream of income from a full-time job to be qualified for this loan. If a person works part-time or receives unemployment insurance, he or she may be ineligible for this loan.
- To qualify for this loan, borrowers must have a current bank account. If the borrower does not have an active current bank account, his or her loan application will be denied.
- The fees associated with these forms of loans are often exorbitant. If a customer fails to repay this loan in full by the due date, the fees associated with the loan will double.
- Due to the high annual percentage rate (APR) on these loans, the customer can end up paying a significant amount of interest.
- If not repaid on time, payday loans can end up costing more than many conventional loan schemes.
- This loan scheme allows individuals to borrow just a small sum. If a borrower needs a greater amount to fulfill his or her financial needs, he or she will need to look at other funding options.
- When applying for a payday loan, a customer can overestimate his or her ability to repay the loan. As a consequence, they might be able to receive a greater amount than they initially required. Due to the high fees associated with these loans, taking out an enormous amount of money could result in a large debt that is difficult to repay.
- If you apply for a payday loan online, there's a decent chance you'll get a loan from a shady source. As a result, it is critical to choose a lender who is trustworthy and will not sell the borrower's details.