All About Payday Loans In India: Features, Benefits, Pros & Cons, Interest Rates & More

Financial emergencies come without any warning. Handling these emergencies is difficult, especially during the end of the month when your monthly budget runs low. While personal loans are readily available to meet financial troubles, they are still tedious. They involve extensive paperwork, and you need good credit credentials to secure a personal loan at the best rates. Thus, they are not ideal to meet instant fund requirements. 

This is where payday loans come into the picture. Instantly available, these short-term loans have gained popularity among the salaried class. Their easy availability makes hundreds of salaried individuals opt for these loans to bridge cash requirements, especially at the end of the month. 

In this guide, we walk you through the benefits, features, pros and cons of payday loans to help you decide if it’s the right choice for you to meet emergency cash needs. 

What are payday loans? 

The primary aim of payday loans is to help salaried individuals meet their month-end cash crunch. They are also known as microloans. 

A payday loan is an ultra-short-term loan (usually, the loan tenure ranges from 1 month to 3 months). It’s sanctioned to salaried individuals. They are required to pay back the borrowed amount plus interest on the subsequent payday. Hence, the name payday loans. 

How to get a payday loan in India? 

Applying for and getting a payday loan is super easy and is usually done via mobile apps or the loan provider’s website. To get a payday loan, all you have to do is follow the steps listed below:

  1. Download the mobile app of the loan provider or visit the website of the lender. 
  2. Register yourself and create an account. 
  3. Fill up the loan application form – you will have to provide your personal, professional and salary bank account details. 
  4. Upload the required supporting documents. This includes bank account statement, PAN card, salary slip, etc. 
  5. The loan sanction is instantaneous, and the loan agreement is generated immediately. 
  6. You have to agree to the loan terms and conditions. You may be required to authenticate the process using an OTP. 
  7. Once you have agreed, the loan amount is credited to your linked bank account, and you are free to use the loan amount as per your requirements. 

If you have provided all the required details and supporting documents, then the loan amount is sent to your bank account within an hour. If there is any missing information or additional documentation needed, the customer support team of the lender will get in touch with you to verify the required information. 

Who can get a payday loan in India? 

The eligibility requirements for payday loans are super simple. All you need to do is:

  • Be an Indian citizen
  • Be aged over 18/21 years (depends on the lender) 
  • Have a steady income via salary, professional business or self-employment 
  • Have good repayment capacity 

Pros of Payday Loans

The most significant advantage of payday loans is their ease and convenience. They are readily available, 100% online and require minimal documentation. Let’s take a closer look at the benefits of payday loans in India. 

  • Highly Convenient 

There are plenty of situations where your salary isn’t credited on time. You may require cash to meet various financial commitments like your child’s school fee, utility bill, medical emergency, etc. 

In such cases, borrowing from traditional lenders is not an option since the time taken for processing and disbursal at banks and NBFCs is lengthy. Also, these loans won’t get processed in a day. 

In such situations, a payday loan comes to your rescue. The loan amount is credited into your bank account within a few minutes/hours of the loan application. Also, you don’t have to go through extensive paperwork to get the loan amount. 

  • Your Credit Score and Credit History don’t Count for Eligibility 

Regular personal loans require you to have a good credit score to be eligible for the loan and secure the best interest rates. If you have a poor or low credit score, the lender may not sanction your loan application. 

When it comes to payday loans, you don’t have to worry about your credit score and history since the lender doesn’t consider it for eligibility. Payday loans are sanctioned based on the salary you draw, so your past credit history doesn’t matter. 

  • Paperless Loan Application

Payday loans are 100% digital. The entire loan process – from application to disbursal – is handled online, usually via a handy mobile app. You can fill the loan application form online, take photos of the supporting documents and upload them and get the loan amount credited to your bank account within minutes. 

  • Flexible Loan Amount 

Whether you need just a few thousand rupees or require a larger loan amount, payday loans can help you out. Generally, the loan amount ranges from Rs. 1500 to Rs. 1 lakh (or more) depending on your monthly income, repayment capacity and other eligibility criteria. 

  • No Restriction on the End Usage of the Loan Amount 

Just like personal loans, you can use the loan amount for any need. Paying school fees, clearing utility bills, credit card bills, wedding, travel, shopping or emergency – whatever be the need, you can use the loan amount with no questions asked. 

  • Ultra-short Tenure 

Generally, payday loans are offered for tenures ranging from 1 month to 3 months. The idea is that you should settle the loan once you receive your next salary. The maximum term offered is 6 months, at the most. 

  • No Prepayment Penalties 

You can foreclose the loan amount any time before the end of the tenure. Generally, there are no foreclosure charges or prepayment penalties. 

  • Credit Line Facility 

Some lenders also offer a flexible credit line instead of a single payday loan. In a credit line, you are granted a specific amount based on your salary and repayment capacity. You can withdraw the required amount as and when you need it. Once you repay the borrowed amount, the credit line is replenished to the original amount offered. You are free to close the credit line once you don’t need it. 

  • 24 x 7 Customer Support 

Payday loan providers are generally Fintech companies, and they have a 24 x 7 customer support team to handle user queries. You can get all your doubts clarified by the customer care team instantly online or via calls. 

Cons of Payday Loans

  • Steep Interest Rates 

The interest rates charged by payday loans are exceptionally high. It ranges from around 36% to 40% per month. When you compare the interest rates to other popular loans like personal loans and credit cards, they are incredibly high. High-interest rates mean you pay a significantly higher loan amount than what you have borrowed. 

  • Miscellaneous Charges 

Besides the interest rates, you will also have to pay extra charges like processing fees, per day late payment penalty, cheque bounce charges, all of which increase the overall loan burden. 

  • Makes you Get into the Continual Debt Trap 

The very advantage of payday loans is their biggest drawback. The convenience and ready availability of these loans make you keep on taking them again and again. This puts you in a perennial circle of high-interest debts, which increase your overall loan burden and drain your savings significantly. 

Key Points to Keep in Mind before Taking a Payday Loan in India

# Most payday loan providers customise the interest rate based on your credit score and profile. While having a low credit score doesn’t impact your eligibility, a good credit score can help you secure better interest rates. 

# The interest rates on payday loans are sharply steeper than personal loans. So, if you don’t need cash instantly, you can go for a personal loan to reduce the overall loan burden. 

# The processing fee can range anywhere from Rs. 150 to Rs. 5000 for a loan. So, make sure to consider all the costs involved while deciding whether payday loans are the right choice for you. 

# Go for a payday loan only when you’re confident that you can repay it on time. This is because every single day you delay the payment, you are slapped with a high penalty. Delaying repayments not only increases your debt burden but also damages your credit score and impacts your eligibility for future loans. 

# Finally, don’t forget to check the credibility of the lender before submitting your personal details. Make sure that the lender is genuine. Do a Google search about the company, check customer reviews, etc. Provide your details only if you’re confident that the lender is genuine, as there have been plenty of cases of suspicious lenders. 

So, what’s the verdict? 

Should you take a payday loan or not? 

Though attractive and convenient, payday loans add an unnecessary strain on your budget. The best way to avoid month-end cash crunches is to better plan your finances. Have a monthly budget and spend accordingly. You need to build an emergency fund (around 3 to 4 times your monthly salary) to meet financial emergencies. 

Simply put, payday loans can be a good choice if you have exhausted other means of securing funds and need cash instantly. However, don’t fall into the habit of taking payday loans for luxury expenses and other expenditures that can be easily avoided. 

click here for more interesting articles

Hannah Montana