In this fast world full of unpredictable events, you will face many emergencies and situations where you need cash immediately. Medical exigencies, house-rent, school/college fees, urgent repairs, etc. are some such scenarios where you need cash immediately. In such circumstances, where will you get cash from? You may have already exhausted the money from your account, and it may be empty. There may be days left for your salary to be credited.You cannot always turn to friends or relatives. If you want to apply for personal loans, it will take some time for the loan to come through. You will have to do some paperwork and go through the loan application process. Also, you should have your credit score in shape to procure a personal loan. So, to avoid all these hassles, you can go in for payday loans. These loans are short-term unsecured loans which you can borrow to get through the month till your next salary comes in. They are offered at very high rates of interest and can be secured both online and offline. Read on to find out a lot more about these loans.
Features of Payday Loans
- The maximum loan amount that you can get through your payday loan is equivalent to your salary.
- The loan amount that you can obtain in a payday loan is considerably lower when compared to that procured in a personal loan.
- They have to be repaid within 2 to 4 weeks as soon as you receive your paycheck. If you do not do this, then you have to spiral over this amount along with the related costs into a new loan, which again comes with associated fees.
- The amount must be repaid on or before the due date specified by the lender.
- They are based on your current financial situation and are not bothered about your credit history.
- They are approved instantly, and you can apply either online or offline for them.
- They come with very high interest rates, which can be calculated on a weekly or even daily basis.
- The loan terms, interest rates, fees, and associated charges may vary with different states in India.
- The cash will be credited to your bank account or you will receive it through a cheque.
- They are given by lenders who specialize in short-term lending.
What are the Pros?
- Credit Score is not Important: The only eligibility required to procure a payday loan is that you must have a steady income, which should be enough to repay the amount you have borrowed. Lenders do not check for your credit score or credit history.
- Chances of Procuring One is Higher: Sometimes, your personal loan will not be approved due to a low credit score. Also, your friends and family may not have the huge amounts of money that you might sometimes need to fund your critical repairs, medical bills, etc. But your odds of getting a payday loan is higher. Also, they will be approved instantly online or offline.
- The loan application and approval processes are very simple as compared to other loans.
- You can get these loans even when you have used up all your salary. You can thus avoid penalties, such as a bounced cheque fee, penalty on late credit card bill payments, etc.
- There is no need for collateral or security.
- You can apply for this loan even when you have multiple active loans.
What are the Cons?
- They are very costly: Suppose you borrow an amount of Rs. 50000 for a period of 8 days at 1% interest per month. Then the amount you will have to repay after 8 days is 50,000 (principle) plus Rs. 4000 (interest) = Rs. 54,000. If you have a 30 day loan, you will be paying 30% interest and if you have a 60 day loan, you will pay 60% of interest. Thus, you can imagine how expensive these loans are.
- Debt May Spiral Out of Control: If you are not able to repay the loan in the next month itself, then carrying it over to the subsequent months attracts huge penalties and costs. This will lead to exceeding your repayment capacity.
- Payday lenders can be very insensitive debt collectors: They may employ a variety of tactics to get back the money from you, and these include making late night calls.
Payday loans are a viable choice for you if you are salaried and find it difficult to manage monthly expenses. You can go in for these loans if you do not have alternative funding options. Otherwise, you can avoid these loans due to their high interest rates. Personal loans are wiser alternatives for long term purposes. They have flexible loan terms, interest rates, and repayment tenures. You can also do the following to avoid these loans.
- Cut down on unwanted expenses, spend wisely, and save for emergencies.
- Use a credit card and pay your bills later.
- Build your credit score for personal loans easily.
- Borrow from your employer.