A payday loan is a high-cost unsecured loan that can be availed at the time of a short-term financial crisis. While this kind of a loan can be secured both online and offline, it shoùld typically be repaid on the next payday of the customer. These types of loans are beneficial when an employed professional earning a monthly salary has an urgent credit need but has already exhausted his or her salary. This loan can be used to pay off one’s regular bills, finance other household expenses, or take care of any other short-term need even when the salary of the borrower has been spent before the end of the month. Even though these loans usually carry a high rate of interest, they are preferred by many individuals since they do not require any collateral or guarantor. Furthermore, these loans can also be availed if a person has a bad credit history or a missing credit profile.
Features of Payday Loans
Before you decide to apply for a payday loan, you should learn about its features mentioned in the list below:
- Under these schemes, customers can withdraw a small amount as loan with a short repayment tenure.
- The borrowed amount under payday loans should be repaid on the next date of receiving salary or income from another source such as social security, pension, etc.
- The due date of payday loans usually ranges between 2 weeks and 4 weeks starting from the date the loan has been borrowed. The payday loan agreement issued by the lender contains the specific date on which the loan must be completely repaid.
- The amount under this scheme might be disbursed in the form of cash, a prepaid credit card, or a cheque that will be electronically deposited into the account of the borrower.
- Payday loans usually have a fast loan processing and approval process.
- Most of the lenders offering payday loans do not check the credit history of the applicant.
- When it comes to the requirements for applying for this loan, the lenders generally do not have a very stringent policy regarding the same.
- Being an unsecured loan, the customer does not have to provide any guarantor or collateral as security in order to secure credit under this scheme.
- Under normal circumstances, a lender offering payday loans doesn’t verify if the borrower can repay the loan while meeting his or her other financial obligations.
- Since these loans do not require any collateral or guarantor, the risk associated with them is extremely high. Therefore, the interest rate charged for these loans are usually very high.
Eligibility Criteria for Payday Loans
While the requirements to apply for this loan vary from lender to lender, there are a few common eligibility criteria that should be fulfilled no matter the lender. Learn about the eligibility criteria for these loans mentioned in the list below:
- The borrower must be a minimum of 18 years of age.
- The customer should be a citizen of India.
- The individual must have a regular source of income with a full-time employment.
- The borrower must have an active current account.
- The applicant must have all the required documents to apply for this loan.
- The customer must have an active phone number.
Documents Required to Apply for a Payday Loan
- Proof of identity such as PAN card, Aadhaar card, Driving License, Voters ID, Passport, etc.
- Proof of address such as Aadhaar card, Passport, Voters ID, Driving License, Ration card, Utility bills, etc.
- Age proof
- Proof of income
- Letter from the employer organisation
- Passport-size photographs
How to Apply for Payday Loans
Follow the steps mentioned below in order to apply for these loans:
Step 1: Collect the form from the nearest branch of the lender or through its online portal.
Step 2: Duly fill the form will all the required details and submit to the lender.
Step 3: Provide all the required documents as prescribed by the lending organisation.
Step 4: Wait for the loan to get approved by the lender.
Step 5: Once the loan application has been approved, the lender will ask the customer to provide all the required documents.
Step 6: Provide all the documents as prescribed by the lender such as income proof, identity proof, age proof, address proof, letter from the employing organisation.
Step 7: After the documents have been verified, the amount will be credited to your bank account.
Advantages of Payday Loans
If you are planning to opt for a payday loan, you should learn about the key benefits of this scheme.
- The loan application and approval process of a payday loan are very simple and hassle-free as compared to any other loan applied through the bank.
- If all the required documents are in order and the customer passes the quick verification process of the lender, these loans can be disbursed in as less as 24 hours starting from the time of submitting the loan application. This is why these loans are also known as quick cash loans.
- Even though payday loans have one of the highest annual percentage rate (APR) among different kinds of loan, they can turn out to be cheaper than many other traditional loans in the long run if repaid on time.
- Customers can avail this loan to repay their bills and other household expenses even when they have exhausted their salaries for the month. This can help them avoid various penalties such as a bounced cheque fee, penalty for delay in credit card payment, late mortgage fee, etc.
- These loans can also be availed by customers who have a bad credit score or a missing credit report.
- There is no need for any collateral or guarantor to secure a payday loan.
- This type of a loan helps the borrower remain independent as it offers instant cash when he or she is running short on cash.
- Payday loans allow the customers to meet any urgent financial crisis.
- Borrowers can apply for this loan even when they already have multiple active loans, without the risk of impacting their credit score.
- You can apply for this loan through both online and offline methods.
Disadvantages of Payday Loans
There are numerous disadvantages to applying this kind of financing plan. Learn about them in the list mentioned below:
- Since payday loans are offered for a short term, they are not well-suited for a financial crisis that is expected to last for several months or longer.
- In order to be eligible for this loan, the borrower must have a regular source of income with a full-time employment. If an individual is working part time or receives any unemployment benefits, he or she might not be eligible for this loan.
- Borrowers must have a current bank account to secure this loan. There are chances of a loan application getting rejected if the applicant doesn’t have an active current bank account.
- The charges associated with these types of loans are usually extremely high. If a customer is unable to repay this loan completely by its due date, there are chances that the fees associated with the loan might double.
- Since these loans have a high annual percentage rate (APR), the customer might end up paying a high amount as interest.
- Payday loans might end up costing more than many traditional loan schemes if not repaid on time.
- Individuals can borrow only a small amount using this loan scheme. If a borrower requires a larger sum to meet his or her financial requirement, he/she might have to look for any other financing option.
- While applying for a payday loan, the customer might overestimate his or her repayment capabilities. This might lead them to avail a larger sum than they originally require. Since the charges of these loans are high, an excessive amount of loan might lead to a high debt which will become difficult to repay.
- If a payday loan is applied online, there are high chances that the loan is being offered by a fraudulent source. Therefore, it is important to choose a lender that is trustworthy, and who will not resell the information of the borrower.