What Are The Pros And Cons Of Payday Loans
A payday loan is a type of short-term, high-interest loan that is issued to borrowers on the basis of their monthly paycheck and has a very short repayment period. Because they are disbursed so quickly and the application procedure may be completed entirely online, they are sometimes known as “Instant Loans.”
The financial issues that can arise at the end of the month can affect anyone. Your trusted air conditioner has finally decided to retire after a decade of service, right in the middle of summer; your child might need a laptop to participate in online classes or exams; your father is in desperate need of a replacement for his hearing aid; it could be anything. Your car’s battery might need to be replaced right away. You have no choice but to look for financial support from somewhere in order to meet the requirements of certain pressing and immediate necessities.
In a perfect world, everybody would be prepared for unexpected expenses like these with their own emergency fund. On the other hand, you cannot condemn those who do not possess one. There could be a number of reasonable explanations for why they do not have one. The second option is to borrow money from close relatives and friends. This is the greatest choice because you won’t have to pay any interest on the money when you withdraw it.
However, keep in mind that it is also the end of the month for them. In a society where the majority of people live paycheck to paycheck, it is not fair to put such obligations on the shoulders of your friends. Still, you should give it a shot, and if it doesn’t work out, you’ll have to rely on a source that can lend you money quickly and on conditions that are negotiable if that doesn’t work out. In situations like these, it is helpful to have access to Payday Loans because they are instantaneous, flexible, and convenient.
What is the Procedure for a Payday Loan?
The vast majority of payday loans may be obtained online. They are mostly provided by NBFCs, which depend on the digital landscape in order to provide this service to members of the public who are in need.
1. Open the banking website or app on your mobile device, and register by providing your name and mobile number.
2. Select the “Apply Now” button on the menu.
3. It is possible that you will be required to input information regarding the types of jobs you have held and your income.
4. The eligibility requirements will be verified using your permanent account number (PAN) and your mobile phone number.
5. Your Aadhaar information will be used to complete a basic KYC check.
6. The screen will show you whether or not you are eligible for a loan.
7. If you are satisfied with the Terms and Conditions, you can accept them by clicking the “Agree” or “Confirm” button. This will allow the loan to be processed and the money to be transferred into your bank account.
Payday Loans Pros
- Super Quick Turnaround Time
It’s possible that the whole thing will take less than five minutes. You will have the much-required dollars in your possession in a matter of minutes thanks to this loan, which lives up to its moniker of “Instant Loan.” This is one of the most significant benefits for a person who is in critical need of financial assistance.
- There is essentially no documentation.
The majority of the paperwork associated with payday loans is completed digitally, either on the bank’s website or through the institution’s mobile app. In addition, all they need is your Permanent Account Number (PAN) and cell phone number to access your credit record and evaluate your eligibility. Therefore, there is no requirement for the completion of any time-consuming forms or the submission of any photocopies of any papers.
- Amount of the Loan based on your requirements
With one of these loans, you could receive anywhere from 10,000 to ten thousand rupees (Rs.) You are able to borrow exactly the amount that you require and easily pay it back. In addition, you are not need to provide any evidence regarding the purpose of the loan or the amount of the loan that you require in order to qualify for it. Simply input the amount that you wish to borrow, and the application will determine whether or not you are qualified for the loan. You are approved for the loan amount if your wage and credit score are sufficient to support it.
- Repayment Tenures
These are loans with a short repayment term. The duration of the stay can be anywhere between 7 and 60 days. In addition, there are no scheduled payments to make. At the conclusion of the term, there will be a single repayment that will cover both the principal amount and the interest accrued over the period. The lender will almost certainly require a post-dated check (PDC) for the final amount with a certain date, or they will require that you set up a standing instruction from your bank account to be deducted on the last day of the loan. This ensures that the loan will be repaid within the allotted time frame.
Cons of Payday Loans
- High-Interest Rates
Lenders of payday loans employ deceitful advertising strategies. They quote the daily interest rate, which will be a single digit or just the interest amount that you are required to repay, but they never mention the annual interest rate on these loans. Instead, they quote the daily interest rate. Borrowers typically do not calculate the APR before applying for loans; rather, they focus solely on whether or whether the overall payback amount is affordable to them. Permit me to illustrate this point with an example:
Mr. A obtains a payday loan from a lender in the amount of Rs. 10,000. He decides that a repayment term of one week will work best for him. It has been explained to him that the entire sum that he is responsible for repaying at the conclusion of the week is Rs.10,700. Because he is anticipating receiving his income within the next week, an additional Rs. 700 is not a significant strain for him to bear.
However, if you convert this interest sum to an annual percentage rate (APR), you would find that it is equivalent to 1% every day or 365% per annually. Is it even possible for us to fathom having such a high interest rate on our personal loans or on our mortgage loans? The so-called expensive forms of credit, such as personal loans and credit cards, come with average annual percentage rates (APRs) of 15 and 40 percent, respectively.
- Allow Yourself to Be Captured by the Debt Trap
If, for whatever reason, you are unable to repay the amount by the specified date, you will be subject to a significant penalty as well as the accumulation of interest. At some point in the future, paying down this loan can become physically impossible for you. Recent unfavourable occurrences associated with internet lending platforms have given rise to serious questions regarding the operations of these lenders. In order to improve the efficiency of the procedures involved in these various forms of lending, more rigorous regulations are required.
Key Takeaways
When you are in desperate need of money, a payday loan can be a useful solution for you to consider. However, because these loans are not backed by anything, the lenders attach extremely high interest rates to them in order to reduce their own risk. Payday loans should not be utilised unless there are no other options left on the table for the borrower. Other options include borrowing money from relatives and friends, obtaining a secured loan such as a gold loan, making use of the cash advance feature on your credit card, or approaching your employer about obtaining a salary advance.
FAQs:
What is the typical annual percentage rate (APR) that is applied to payday loans?
The interest rates associated with payday loans are quite high, typically averaging 1% per day as a general rule.
How long does it take to get a payday loan approved and the money distributed?
Instant loans, also known as payday loans, are those that are processed and distributed within the same day.
Is it possible to submit my application for a Payday Loan online?
The application process for most payday loans can be completed digitally, either through the bank’s website or the mobile app the bank offers.
What is the maximum amount of a Payday Loan that one can get from Kotak Mahindra Bank?
Payday loans from Kotak Mahindra Bank might cover up to half of your monthly net income if you qualify.
What is the most reliable app for getting a payday loan in India?
There are numerous well-known payday lending apps available in India, including MoneyTap, KreditBee, PaySense, CASHe, EarlySalary, and LazyPay, amongst others.