Financial emergencies tend to arise anytime, catching you by surprise. You might need urgent funds to tide you over in such a situation. In this case, you may consider a payday loan. Bridging your end-of-month cash crunch gets easier when you get a payday loan. Here are a few things you should know about payday loans and the working of payday loans in India.
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What Is A Payday Loan?
Payday loans are new-age loans provided by Fintech lenders that help you deal with any monthly cash flow problems. There may be some emergency situations that can wipe out the entire amount credited much before the end of the month.
Numerous companies now offer loans known as payday loans or salary advance loans to meet the needs of such borrowers. They are essentially very short-term, unsecured loans that become available very quickly. Because these loans are provided by fintech lenders, it is simpler for people with poor credit to qualify for them because they do not place as much importance on credit ratings. Instead of using your credit score, these fintech lenders analyse information from your digital footprint, such as social media accounts, online purchases, etc. These data points support the lenders’ lending decisions when combined with artificial intelligence.
These loans may be obtained for as long as your salary is credited or for a shorter time frame. These loans have repayment terms ranging from 7 to 60 days. In this article, we talk about the availability of payday loans for individuals with bad credit.
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Features of Payday Loans in India
The following information will help you understand how payday loans in India operate:
According to your pay
Your current wage determines how much you will borrow from a payday lender. Because of this, it qualifies as a payday advance.
Short terms
Payday loans have a short repayment period of seven to sixty days. Payday loans with up to three-month payback terms may be available from some lenders (90 days). Usually, the borrower must pay back the loan by the date of their next payday or the day they start receiving another type of income, like a pension. Thus, they resemble payday loans.
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Application simplicity
Applying for a payday loan online is pretty simple. There is very little paperwork required just your most recent pay stub or bank statement and documentation of your identification and address.
Zero credit checks
Payday loans do not require a credit check. Many payday lenders are willing to give money even to borrowers with bad credit. That is why a person who is denied a personal loan could yet be granted a payday loan.
No security
Unlike secured loans, payday loans do not require collateral. Like personal loans, it also eliminates the need for a guarantor.
Quick payday loans
On their websites and mobile apps, lenders frequently promote fast payday loans that you can apply for. Due to the quick disbursal time, they are known as immediate payday loans.
Eligibility
You must be an Indian citizen who is at least 18 years old. You must have a source of income, whether it comes from a job, a business, or being self-employed.
Rate of interest
Lenders may charge interest rates as high as 30–50% on payday loans because they are short-term loans without guarantors or collateral.
Extension of a credit line
The way payday loans operate in some situations may be that the lender gives you a credit line rather than a term loan. Thus, the lender will extend you a set amount of credit, from which you can withdraw whatever sum you need as and when needed. The credit line can be terminated whenever you choose. If not, each time you make a payment, the credit line is refilled.
Multipurpose
You can use payday loans for any purpose. Your electricity bills or credit card bills could be paid with it. It can also be utilised to fund a last-minute trip or to pay for tuition. The lender won’t check to see how the money is finally used.
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Repayment default should be avoided
If you don’t make your payments on time, your lender may assess daily interest charges of up to about 4%. A high debt load and a low credit score could result from this.
No closure fees
There are no fees for early or partial repayment of payday loans. Therefore, you may repay the loan amount before the loan’s term is up if you have the necessary funds.
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Advantages of Payday Loans
Simple accessibility
Anyone can readily acquire payday loans through an app or on the websites of fintech lenders. No lender’s branch offices need to be visited.
Almost no documentation
Payday loans are loans made available by modern lenders, therefore they need little paperwork. Usually, all that is needed is a salary statement, together with identification and housing documentation. You don’t need to search everywhere for copies of these documents. The app or website make it simple to upload a scanned copy of the documents.
Dynamic borrowing limits
Your repayment histories are tracked by these fintech lenders, and if you demonstrate credit responsibility in the future, your borrowing limit might be raised.
For instance, if you are allowed to borrow 50% of your salary for the first time and show that you can make your payments on time, you can be allowed to borrow higher amounts of 70–80% the following time.
No fees for foreclosure
There are no foreclosure fees associated with a payday loan, just like with personal loans. The loan can be repaid whenever you like, with no additional fees.
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Disadvantage of Payday loans
High interest rates
Payday loans are quite practical and can be obtained even by people with poor credit. The interest these lenders charge, nevertheless, comes out to be pretty hefty.
A debt trap could result from the readily available loans
Because they are so conveniently accessible, people may use them frequently and without realising it, they may become accustomed to taking out loans. These circumstances could push someone into a debt trap that’s hard to escape.
Not Appropriate for Self-Employed People
Payday loans are designed to address the financial needs of salaried employees. The needs of self-employed people or entrepreneurs who might not receive a paycheck at the end of each month are not met by these loans.
To keep these loans affordable, earlier repayment is essential
The cost of the loan stays low overall the sooner a person is able to return it. Or applying for this type of loan proves to be extremely pricey.
How To Apply For A Payday Loan?
You can apply online for payday loans. The majority of lenders who provide this service let you apply for payday loans online using their official websites or mobile apps.
Typically, the procedure for applying for a payday loan online is as follows: submit your information on the application form for the loan, and then upload any papers the lender requests. You will be required to verify the agreement using a One-Time Password (OTP), after which you will only need to wait for approval and for the money to be deposited into your bank account.
Shortly after the lender accepts your application, the money will be transferred to your designated bank account. It might occur in as little as thirty minutes. A speedy payday loan application process is ensured by providing all the necessary information and documentation. If applying for a payday loan online is not your preferred method, you can alternatively apply in person at a branch of the financial institution of your choosing.
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Final Words
A quick way to receive credit is through payday loans. However, you must bear in mind that the interest rates are high, and if you run out of money, you must not default. However, there is way where you can avoid paying high interest and that is if you invest in chit fund. Now, you might wonder how? If you make a monthly budget and save a little amount every month and put in a chit fund scheme, you can get a lumpsum amount in times of emergency. People who want to save money do not bid and those in need of urgent money bid to take the lumpsum amount which is then repaid in installments. Just like taking a loan, the difference being that the interest rate is very low when compared to banks and other loan apps. Secondly, there are no such requirements as proper documents, good CIBIL score etc to get the money you need urgently.
The Money Club is one such online chit fund platform with more 4 lakh satisfied customers.
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