What is a Payday Loan? Meaning, Benefits, Features & Process in India

The fast-paced lifestyle necessitates the need to have funds at our disposal for meeting financial exigencies. Though most people have regular savings to meet such needs, still many income groups fall short of funds. At such times, instant loans come as an easy financial choice.  A Payday Loan refers to a short-term loan that helps salaried individuals cover their immediate cash needs until their next paycheck. However, it is a high-cost loan as compared to a Personal Loan. Let us explore what a Payday Loan is and how it works in India.

What is a Payday Loan?

A Payday loan is a short-term unsecured loan. It normally gets repaid within two weeks to a month, i.e., close to an individual’s next payday. Payday loans help in meeting immediate cash needs including house rent, school/college fees, and the like which are not possible to withhold till the next payday arises. These loans are availed by salaried individuals, who have to ensure that the loan gets repaid in their next salary.

Payday loans are especially helpful for those who have difficulty managing their day-to-day expenses and often struggle by the month-end. However, owing to their short-term nature, Payday Loans carry a higher rate of interest as compared to other small-term loans like Personal Loans. But still, borrowers prefer it due to convenience. In India, Payday Loans are availed to meet expenses towards weddings, medical emergencies, and paying school fees. 

Key Features of Payday Loans

• Payday loans are based on the applicant’s salary particulars and generally do not exceed them
• Payday loans are very short tenure loans, normally from two weeks to a month till the next payday
• Instant approval with minimal documentation, with borrowers having a regular source of income
• Payday loans are for satisfying immediate cash requirements, hence have a higher rate of interest than other short-term loans
• Collateral free loan with no credit checks required, hence easily available

How does Payday Loan work in India?

Payday loans function in a different manner as compared to Personal Loans and other loans. You can avail of a Payday Loan either through online mode or by visiting the branch of the lender providing the Payday Loan. States in India could offer different Payday Loan terms including interest and fees. Once your Payday Loan gets approved, you would receive the amount through a cheque or your bank account. You have to ensure repayment of the money as per the Payday Loan terms approved with the lender in India, which is mostly before your payday.

Payday loans are a popular option owing to their convenience and easy availability. However, Payday loans come with a charge based on the loan availed. As they have a short repayment period, the interest charged is higher. 

Also Read : Can I Get Education Loan without Interest?

Which is better - Payday loans or Instant Personal Loans?

Payday loans are particularly helpful for salaried individuals who do not have other funding alternatives. However, since the interest rate is high, a Personal Loan is a better choice for any long-term loan requirement, as it gives flexible repayment options at lower interest rates.

Instant loan apps like Hero FinCorp Instant Personal Loan provide customised Personal Loans which make it easier for the borrower to fund their immediate short-term fund requirements at attractive loan terms than a Payday Loan.

Understanding the key differences between Payday Loans and Personal Loans can help you make the best choice based on your financial needs.:

 Key Differences Between Payday Loans and Personal Loans

Also Read : Can a person have a personal loan and a home loan simultaneously

Advantages and Disadvantages of Payday Loans

Advantages of Payday Loans

Payday loans are meant for emergency use, and they have several advantages, including:

• Immediate Approval: Payday loans are normally approved immediately.
• No Credit Report: Although you may have a bad credit score, Payday Loans can be approved.
• Immediate Cash: The funds are disbursed immediately, which enables you to cover pressing expenses.

Disadvantages of Payday Loans

Payday loans, however, have their own risks:

• High-Interest Rates: Payday loans have high interest rates, which are very expensive in the long term.
• Debt Cycle: Borrowers are likely to go into a debt cycle, where they keep rolling over loans because they are unable to pay back on time.
• Short Repayment Period: The short duration of the loan sometimes results in problems for some borrowers to pay back the loan in full by the due date.

Who Can Apply for Payday Loans?

Payday loans are designed for salaried employees who need to borrow some money fast before their paycheck on their payday. It is less difficult to qualify for a Payday Loan.

Who qualifies?

• Salaried Employees: Have regular monthly income. 
• Age Group: Most are between 21 and 58 years.
• Indian Resident: The borrower requires valid address proof and ID proof.
• Minimum Income Requirements: Various lenders have minimum numbers, but it can be as low as Rs 15,000/month.
• Bank Account Holder: Required in order to pay out and make repayments.
• Good Employment Record: Some lenders check to see how long the borrower has been at employment.
• Smartphone/Internet: Needed for online application and check.

How can I Apply for a Payday Loan Online?

To apply for a Payday Loan online, you can go to the lender's website or app, fill in your personal details and salary details, upload the documents required such as proof of identity and salary slips and submit your application. Once the lender reviews your loan details and application information and verifies it, your application will usually be approved promptly and money will be sent directly to your bank account.

Conclusion

Payday loans can be a convenient solution for urgent cash needs, but they come with risks, particularly high-interest rates and short repayment terms. Always assess your ability to repay before applying, and consider alternative loan options such as Personal Loans for better long-term financial stability.

Frequently Asked Questions 

Can I get a Payday Loan without a credit check?

Most payday lenders in India are more concerned with your income than with your credit rating, but some regulated lenders might still conduct a minimal credit check.

How much can I borrow with a Payday Loan?

You can usually borrow up to Rs 50,000, based on your monthly salary and the policy of the lender you select.

What happens if I miss a Payday Loan payment?

Missing payment may attract late charges, increased interest, adverse credit reporting, and legal proceedings by the lender to recover the debt.

Are Payday Loans legal in India?

Payday loans are permitted only if issued by RBI-regulated institutions. Always ensure your lender is properly registered and abides by RBI policies.

What are the repayment terms?

Repayment is typically made from a few weeks to a month, usually on your following payday, and consists of the amount borrowed, interest, and fees if any.

Are Payday Loans Safe?

Payday loans have high charges and interest. Borrow money only from regulated lenders and only if you're certain that you will be able to repay on time.