Payday Loans: What are the Pros and Cons?

Payday loans have recently been in the news and suddenly came to everyone’s notice. Although they have been a common thing in the West, payday loans in India are fairly new. To make sense of the happenings, it becomes essential to know what payday loans are and what are their positives and negatives.

What is a payday loan?

Payday loans are short-term loans available online which can be availed with minimum paperwork within a few hours for emergency purposes. The idea is that you pay the loan back on your next payday. The interest charged on these loans is usually on a per-day basis and is much higher than a personal loan. There are a lot of companies that offer a payday loan online. They haven’t really taken off in India because of advertising regulations and other reasons. If you are on the lookout for an alternative to a payday loan, you can check out Pocket Personal Loan, available on Bajaj Markets, wherein you can get quick disbursal for loan amounts from Rs.10000 to Rs.50000 with a completely paperless, 100% DIY process and an attractive interest rate of 12-18%.

What are the pros?

• Convenience

There could be occasions when your salary isn’t credited on time, and you require cash urgently for an emergency, or even for your regular expenses. Borrowing from friends or relatives isn’t always an option. Borrowing from traditional money lenders also takes some paperwork and the loan won’t get processed in a day. You need not put off your emergency expense in this scenario. A payday loan will provide you with the required amount of money in a few hours with minimum paperwork. All you have to submit is salary slips for three months, bank account statements, security cheques, and the application form.

• Reliability

If you are borrowing from a moneylender, there is a chance that the loan may not come through. Friends and family probably would not be ready to lend the huge amount that you need for emergencies like major car repairs, medical bills, etc. At such a time, you can quickly avail a payday loan online. The chances of you getting a loan are much higher.

• Credit history doesn’t count

Online payday lenders consider your current financial situation and not your past credit record. If you have a low credit score, traditional lenders may hesitate to give you a loan. But payday lenders consider your current financial situation instead of your credit history.

What are the cons?

• Interest rates

Payday loans online charge an unbelievably high-interest rate of around 36% a month. The annual interest on these loans comes up to an unreasonably high rate of 540%. If you compare it to the highest interest rate from other sources, credit card loans charge 40% per year, which is still considered to be very high. This sounds unreal because customers often do not look at the interest rates of payday loans as an annual rate.

• Other charges

As if the high-interest rates were not enough, there is also a 1-2% processing fee, 1-4% per day late payment penalty, and Rs.500 to Rs.1000 cheque bounce fee. If you end up paying so many costs for something that is supposed to ease your financial burden, you end up with a bigger burden by the end of it.

*Some lenders don’t charge prepayment fees

**Interest rate is charged on the outstanding amount

***It is charged when the borrower doesn’t even pay the minimum amount

• The bad habit trap

The convenience of a payday loan online can prove to be its undoing! Once you take a payday loan and realise how quick it is, you could fall into the trap of taking it more than once in a year. You might not even realise how much total interest that means for you. If you default on these loans, the burden will be unimaginable.

Difference between Personal Loan and Payday Loan

The basic difference between personal loan and payday loan are mentioned below:

Now that you have a better understanding of personal loan as well as the pros and cons of payday loans, ensure that you make a wise decision while availing credit for yourself. Read below to know our verdict.

The verdict

However attractive they may seem at first, payday loans are an unnecessary strain on your wallet. The best way of avoiding them is by keeping an emergency fund at hand, which is worth a minimum of three-four months of your salary. So if your car breaks down in the middle of a trip, you don’t have to worry about borrowing money at all. And if your emergency fund is also exhausted, there are personal loans that you can avail with convenience. For example, the Bajaj Finserv Hybrid Flexi Personal Loan, available on Bajaj Markets. It offers you interest-only- EMIs and flexibility in repayment of the principal amount. There are no additional charges or tedious paperwork.

Bajaj Markets, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Bajaj Markets, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we work towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Bajaj Markets App.