Your salary may still be days away, but an urgent expense cannot always wait. For working professionals facing a sudden cash crunch, a payday loan can offer quick access to money until the next salary arrives. However, the convenience comes with short repayment periods and often higher interest rates, making it important to understand the costs and conditions before borrowing.
What is a payday loan?
A payday loan is a short-term loan meant to cover immediate expenses until the borrower’s next payday. It is generally linked to the borrower’s salary, so the amount offered may depend on their wages or monthly income.
The repayment period is usually brief and can range from around two weeks to one month or until the next salary date. Since these loans are intended for short-term needs, the borrowed amount, along with interest and applicable charges, is generally repaid around the next payday.
Where can you get a payday loan?
Payday loans may be available through a lender’s physical branch or online. The application process is generally quick, with limited documentation required when the lender can verify the applicant’s salary information.
Also Read | 74% of households in Yemen unable to meet basic food needs
Once approved, the money may be credited directly to the borrower’s bank account or provided through a cheque. Repayment typically includes the loan amount, interest and applicable charges.
What are the types of payday loans?
Payday loans can be secured or unsecured. Secured loans require collateral, while unsecured loans do not require an asset as security and rely on the borrower’s promise to repay.
What are the benefits and features of payday loans?
A key advantage of payday loans is quick access to funds for urgent expenses. The application process can also be relatively straightforward and involve fewer documents. Some lenders may offer these loans even when the borrower does not have a strong credit history.
However, the interest rates, repayment periods and other conditions can vary between lenders. Borrowers should therefore check the specific terms offered by their bank or lender before taking the loan.
Risks and disadvantages of payday loans
The convenience of payday loans comes with certain risks. They generally carry higher interest rates, and combining these rates with a short repayment period can make repayment difficult.
Missing repayments may also affect the borrower’s credit score. Some lenders offering such loans may not be regulated by the Reserve Bank of India (RBI), which can add to the risks. Borrowers should also carefully examine charges and loan conditions to avoid unexpected costs.
Payday loan eligibility and documents required
Generally, an applicant should be an Indian citizen aged above 18 years, have a full-time job and earn a fixed income. Lenders may require documents proving the applicant’s identity, age, address, employment and income.
Also Read | Europe weighs 50 million-barrel diesel stock release amid
How do payday loans work in India?
Applicants can apply through a lender’s branch or online portal. After checking the applicant’s income and employment details, the lender may approve and transfer the loan amount to the bank account or issue it through a cheque.
Many advance salary lenders do not require a traditional credit check. Instead, they may assess employment stability and income to approve the loan, according to a blog post by Kotak Mahindra Bank.
Many lenders approve a payday loan in India of about 30% to 60% of your net monthly salary for bullet repayment. For instance, Kotak Mahindra Bank offers a one-month payday loan of up to 50% of the borrower’s net salary to eligible salary account holders at a pre-approved rate.
