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Emergency expenditures come without warning ignoring whether it is the start or end of the month. So what’s the option if one needs cash fast at the end of the month but the salary is about 4-5 days away. Even worse, what if this is an expenditure that cannot be delayed? Ideally of course one should have an emergency fund, yet not all of us plan ahead of time. If one has diligently maintained an emergency fund, it is a relatively smooth affair and one has to worry a lot less. But thankfully even if one does not have an emergency stash and is out of money a few days before the salary comes in, there is the option of availing a payday loan, which is also known as an early salary loan and instant loan.
What are Payday Loans?
A loan that is disbursed instantly, features a very short tenure and is an unsecured borrowing option is classified as a payday loan or more appropriately an instant loan. The basic premise of these loans is that the borrower is salaried so will be able to repay the loan as soon as he/she receives the net paycheck. Just as the case is with any loan, a payday loan has interest rates associated along with it. These interest rates are commonly known as the annual percentage rate or APR. Though the rate varies across different states and lenders, as a whole there is a cap on the maximum APRs that a lender can charge the instant loan applicants. Higher rates are usually charged to those with lower credit scores and lower income as these are considered to be higher risk borrowers. But the rule of thumb states that the interest rates of payday loans are higher than that of the standard personal loan obtained from a bank.
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Alternative Borrowing Options to Instant Loans
While one is looking into payday loans as a short term cash crunch solution, it is still worth exploring other options. The most common among them is to borrow from friends and family. One can and should first reach out to friends and family and see if your requirements can be met with their help. But for the most part, they might have their own commitments and constraints. And even though the amount required might not be large, it could be difficult for someone to arrange for it in a short time. The other option that one has is to go for a traditional personal loan from a bank. There is absolutely nothing wrong with that, barring two things. First, banks usually provide loans for larger amounts and thus one might not get a loan for a smaller amount that one is looking for. If one does proceed with it, they may end up borrowing a much larger amount than actually required. This is something that one should avoid always as the interest outgo increases for the borrower. Also, the bank personal loan processing times can often be a bit longer unless one is pre approved. A payday loan then seems to be a middle ground, where one can get the loan disbursed fast for relatively short time and smaller amounts – all of which together translate into lower interest payouts as compared to a personal loan.
The Process of Instant Loan Application
If one needs to access a payday loan, one needs to approach a lender that provides the service. As of yet, banks and NBFCs do not offer instant loan services to their customers. The usual process revolves around the lender providing the borrower with an unsecured loan and one is expected to repay the loan once the next paycheck comes in. Instant loan providers do not look for collateral when providing a payday loan, hence the unsecured tag. In case of a typical payday loan, the lender looks for some form of employment verification or confirmation of paychecks such as the past 3 months’ bank statement. Additionally, some basic documentation needs to be provided to the prospective lender at the time of application such as PAN Card and address proof like Aadhaar, Drivers License, etc.
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Paper Application for Payday Loan
In the old school method, one could just walk into any lenders office with the required documents like payslips/address and walk away with a small loan. Of course, one will have to repay the same by the next paycheck. If the borrower is unable to do so, one can pay it back at a later point in time, but one should remember that he/she will end up paying a fair bit more due to the high interest rates. The borrower would need to write a post-dated cheque or provide an ECS mandate in order to provide payment for the instant loan. In a normal situation, the date on the post-dated cheque corresponds to the due date of the loan. Do note that in case there are not enough funds in the borrower’s account, he/she will end up paying the applicable check/ECS bounce charges to the bank on top of the amount that was supposed to be paid to the lender as interest plus loan amount.
Online Application
With almost every field entering the online foray, it was only a matter of time before instant loan providers ventured into the same. Individuals seeking instant payday loans can access several payday loans online lenders and get the loan amount transferred directly into their accounts within a matter of a few minutes. For various small needs and emergency situations, one can rely on instant payday loans. But do keep in mind these loans are not really suitable for making bigger purchases such as car or home down payment. These loans can turn out to be quite expensive in such cases as these are designed for short tenures only. Most of the instant loan providers will give lend up to 90% of the monthly salary of the borrower as per pay slip provided. However, the loan amount can be higher or lower based on the individual applicant’s profile. The amount also depends on the state you reside in and at times certain other smaller parameters such as your credit history.
Most online lenders provide same day payday loans. All that the borrower needs to do is visit the instant loan provider’s website and provide some basic details such as PAN and one will receive the amount in their account within some time. Lenders require the applicant to fill out key details such as name, address, contact details, date of birth, correspondence address, proof of identity, employment details and of course bank account details. These are some of the most common information that your lender might or might for to check instant loan eligibility. Once the applicant has filled out the application form and submitted, the lender would take some time to review and approve the instant loans. Once they have reviewed the application, it will be processed and send to borrower’s account as provided on the application.
Things to Keep in Mind While Availing Payday Loans
There are a lot of lenders who provide payday loans to individuals with relatively low credit scores. But these short term instant loans do usually come at a price in the form of interest rates that are significantly higher than a standard personal loan. It is therefore good practice to take a look at different lenders before taking a payday loan. It may help secure an instant loan with a lower interest rate as well as additional features if the lender provides any. Though one can walk into any of the lender’s outlets to get the loan sanctioned and disbursed to one’s account, doing it online has the benefit of convenience.
One can access incredibly fast services as the online application process takes much less time than visiting a lender location and applying for the same loan. Imagine applying for a short-term loan and getting the amount in the bank account within few minutes in some cases. Because the applicant is filling in all the details by himself/herself, the chances of any mistake are pretty low in this case. Also because the process is so fast, if there are any discrepancies or missing documents, that can be sorted out by the agency as a much faster rate. They will even inform one if the loan was approved or the application needs some amendment.
Though same day payday loans might sound like an attractive proposition, they must be handled with a lot of care. A lot of care over here means, that one should pay off the loan as soon or as early as they can. The onus is on the borrower regarding how they want to handle the loan. In case one does not take this seriously the borrower will end up paying a lot more than what they should have. Just like anything else, if one uses these instant loans in genuine emergencies and repays them off at the earliest, these instant loans can work like a charm.