What is PayDay Loan – Interest Rates, Benefits and How to Apply
Need urgent cash but your payday is still far away? You can opt for payday loans and repay the amount once you get your salary. Also known as cash advance loans, payday loans come with higher interest rates and shorter tenure than personal loans.
Read this blog to know how payday loans work, their fees and whether you should opt for such loans.
What is a Payday Loan?
A payday loan is a short-term loan with a high-interest rate and shorter tenure as low as 30 days. Such a line of credit usually doesn’t have any stringent eligibility criteria. Payday loan service providers usually don’t check a borrower’s credit profile. For this reason, such loans could come with additional fees and charges.
With all its downsides, payday loans could still be of great help if you’re in urgent need of cash but have a steady source of income. Just make sure to pay off the loan as soon as you get your next salary to avoid high interest rates or penalty fees.
How Do Payday Loans Work?
Payday loans are just like getting a portion of your salary in advance. All you need to do is show your income proof in the form of salary slips. Based on your income, the lender would sanction a certain amount, which you would need to repay within 30 days.
Payday loan service providers usually don’t check the borrower’s credit profile, hence the risk of defaulting on the loan is quite high. This is why lenders charge high interest rates on payday loans.
Payday Loan Details
| Loan Amount | Up to ₹20 Lakh |
| Interest Rate | 9.9% to 45% p.a |
| Foreclosure Fee | Nil |
| Tenure | Up to 72 months |
Benefits of Payday Loans
Here are the benefits of payday loans:
- Easy approval
- Minimal documents required
- Instant disbursal
- No collateral or guarantor required
- Straightforward loan application process
How to Apply for Payday Loans?
Applications for payday loans are a simple and instant process for every borrower. However, while applying for payday loans, read the lenders’ terms and conditions carefully.
You can easily apply for a payday loan online using the following steps.
- Go to the website or the app of your preferred lending institution and apply for a payday loan.
- Enter the required details, including your name, address, phone number, and date of birth. You must also provide your proof of income details. This ensures whether you are employed or have some other source of income.
- Upload scanned copies of the required documents in the marked field.
- Fill up your bank details to receive the loan amount. Lenders will disburse this amount as early as the next business day.
- You will receive an OTP on your registered mobile number. Enter the OTP to complete the authentication.
- Carefully read and agree to the terms and conditions. Click on Submit or Next to complete your application process.
Interest Rates on Payday Loans
As mentioned, payday loans come with high-interest rates. Depending upon lenders, these can be as high as 30-50%. Some lenders may charge up to 2% on a daily basis, which can add up to an APR (Annual Percentage Rate) of over 700%. This is much higher than the interest rates of personal loans and the APR of credit cards.
Documents Required to Apply for Payday Loans
You are required to submit these documents to apply for a payday loan:
- Identity proof (Voter card, Aadhaar Card, driving licence, utility bills, ration card, etc.)
- Income proof
What are the Disadvantages of Payday Loans?
Even though payday loans are growing in popularity, there are various disadvantages of availing a payday loan:
- As it is characterised as a short-term loan, the repayment tenure is very short, ranging from 7 to 60 days. Thus, borrowers looking to repay after months or years should not opt for a payday loan.
- Given the urgent nature of this loan and its high-risk feature, lenders usually charge exorbitant interest rates. On a per-day basis, this rate might sound affordable, but their annual percentage rate (APR) can go above 600%.
- Interest rates can depend on one’s Loan repayment capacity. As individuals having a poor credit score or low income are high-risk borrowers, payday loans are offered to them by lenders at a very high interest rate.
- Since it’s a risky loan, lenders only allow a limited amount to be borrowed using this scheme.
- Inability to repay the amount borrowed within the loan tenure can lead to significant penalties and additional costs. Furthermore, failing to pay back the loan amount in time can lower your credit score.
- To be eligible for this loan, you need to have a source of regular income. Usually, only full-time employees pass the eligibility criteria.
But don’t worry. Here are a few alternatives to payday loans that can help you during an emergency.
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Alternatives to Payday Loans
Here are some of the alternatives to payday loans:
- Avail of a personal loan
- Request your employer for an early salary
- Have an emergency fund
- Use your credit card
But why go for high interest payday loans when you have Navi Cash Loan. Navi offers instant personal or cash loans in a 100% paperless manner. You can get loans up to Rs.20 lakh at attractive interest rates and flexible repayment tenures. All you need is the Navi app and your PAN card. Yes, getting a loan from Navi is that simple!
Final Word
Arranging funds during an emergency can be very difficult and stressful. Not all individuals have savings or emergency funds. Fortunately, instant payday loans bring a solution to the problem of short term cash crunch. However, given the high-interest rates and short tenure of these loans, one should consider their financial capabilities before availing them.
FAQs
The repayment tenure of a payday loan usually ranges from 7 to 60 days. You can try to opt for a maximum repayment tenure of 3 months. However, you cannot extend or delay paying the borrowed amount and interest beyond your chosen tenure. If you do so, you will have to incur additional costs and might get penalised.
To be able to avail a payday loan, you have to be at least 18 years old and an Indian citizen. Furthermore, most financial institutions only offer this loan to full-time employees who have a regular source of income.
To allow for a hassle-free and simple process, these loans usually need only bare minimal documentation. Thus, borrowers need to furnish their proof of address and identity proof. Along with those, some lenders might ask for proof of income.
Usually, because of the high-risk involved in repaying this loan, lenders usually offer it to full-time employees only. However, if you show a regular source of income through your part-time employment, you might get a payday loan. This will come at a very high interest rate.
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