We live in a consumerism driven society and a big percentage of individuals have exposure to credit. In such a scenario, falling short on the funds towards the month end or on account of some additional expense that came in unexpectedly, can be common. In such a situation borrowing is inevitable. And there are two options, first to ask for help from friends and folks or to avail a fast Cash Loan. Most of the individuals may opt for taking a pay day loan that not only gives them access to cash within hours but also helps in saving the face by not asking for short term loan from friends.
While personal loans are also cash loans and do come with a string of end use, but the processing time is longer in comparison to the pay day loans that are also termed as instant cash loans. But before one takes a plunge and applies for that fast cash, the following terms and conditions must be reviewed.
Smaller ticket loan
The pay day loan is a small ticket loan and the loan amount is restricted to a certain percentage of the net monthly income. Usually it is restricted to 50% of the salary credits. So if one has a larger fund requirement then this form of loan may not be able to serve the purpose.
Complete money is to be paid
The repayment term on such products is quite short. While it can range from 15 days to about 90 days, usually, the provider may not go beyond the date of salary credit. Especially for the first timers. In that case complete loan would need to be repaid. For example one has a salary of Rs 50,000 and takes a loan of say 20,00 to bridge the gap of funds required, complete 20,000 would need to be repaid on one go. This can also lead to cash crunch in the following month. And if he takes another loan to meet the shortfall, the borrower may get into a vicious cycle. So before taking the plunge one must understand the funds availability and the way the cash flow would get managed in following month. This can lead to kind of debt trap before one is actually able to pay it off completely.
High cost and upfront deduction
Goes without saying that the cost of such loans is quite high. It can start from anywhere around 36% and move upwards. Apart from the rate of interest there is a processing fee as well. Both the processing fee, which generally is about 2% of the loan value, and the interest gets deducted upfront from the loan proceeds. Only the balance amount gets transferred into the account.
May not get reported to bureaus
While the Reserve Bank of India mandates all loans to be reported to credit bureaus, there have been instances where some of these new age fintechs have not complied with the norm. In such a scenario, the good repayment pattern will not help in improvement of the credit profile, if the borrower is taking the loan to work on his profile. One should obtain the free CIBIL score and report to check if the loan is actually getting reported. In case it is not being reported, the same must be taken up with the lender and it may be a better idea to move to a different provider.
Complete online process
The process for most of these pay day loan entails only online process. This means that the borrower has to apply through the mobile application and complete the formalities through that app only. In case one is not very comfortable completing all the formalities on the go, then he may not be able to access the loan.
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