You need money in a hurry. Unfortunately, salary day is still 10 days away. You have booked a new room and the landlord wants the rent paid in advance. Now, where’s the money? This is when your friends suggests….Why not avail a payday loan? Many Fintech start-up companies sanction payday loans within a couple of days. You can even get loans up to a couple of lakhs. The Fintech start-up manages the documentation and you face no hassles.
What is this payday loan and should you take it? Let’s find out. Want to know more on personal loans and other loans? Just leave a missed call on IndianMoney.com financial education helpline 02261816111 or just post a request on IndianMoney.com website. IndianMoney.com offers Free, Unbiased and on-call financial advice on Insurance, Mutual Funds, Real Estate, Loans, Bank Accounts and Capital markets
Payday loans are very popular in the USA, UK and other Western Countries. Payday loans had an interesting origin. Blue collar workers in the West, used to live from pay cheque to pay cheque. Very similar to what happens to you and countless other citizens. Blue collar workers availed payday loans which were cash loans to meet emergency needs and had to be repaid, as soon as the next pay check arrived.
Payday loans are marketed in a completely different way in India. Fintech start-ups which offer these loans target the young, highly mobile working citizens of the country. You can borrow money from a start-up which offers payday loans, if you face a cash crunch a few days before your salary. This money is repaid within a few days after getting your salary. It’s just like getting your paycheck early.
Remember: Fintech Start-ups charge a very high interest on payday loans as these loans are unsecured (no collateral/guarantee is needed).
You and other citizens avail payday loans to go on holiday, buy the latest smart phone or a laptop, meet a medical emergency or fund a short term education course. You and other youth who have just got a job, need a payday loan to pay rent or an advance.
Fintech Start-ups sanction these loans within 2-7 days. The quantity (ticket size) of these loans is around INR 10,000 to INR 30,000 or a fixed percentage of your salary, though some Companies could sanction loans up to a few lakhs. You have to repay these loans within 5 to 30 days. The Fintech Start-ups would charge an interest of around 1% a day. You are expected to repay the loan, within a few days of getting your salary.
Your salary is the main factor in getting your payday loan sanctioned. Start-ups use the latest technology to assess how much loan you get, interest rates and loan eligibility conditions. They even track and follow you on social media. They check your social media profile, status, comments on the timeline, number of followers, to get an idea of your spending habits.
If any of your friends have defaulted on a loan, you might find it tough to get your payday loan sanctioned. Fintech Start-ups have algorithms which identify whether you are a safe borrower through social media, mobile phone usage or even GPS Location.
You will have to submit copies of PAN Card, bank account statements and ITR to the start-up. The Start-up will check your credit history and then decide, whether to lend to you or not. The Start-up outsources the verification of your documents to agents, who have a presence in different cities.
Why Payday Loans Are Bad For You?
Payday loans can charge you interest of 1% a day. This is a very high interest rate. A personal loan can charge 17-22% a year. A credit card can charge 2-3% a month. But….payday loans charge 1% a day.
Most start-ups offering payday loans, have a tie-up with firms/Companies having an NBFC license. They don’t have their own NBFC license. Start-ups offering payday loans are trying to get the NBFC license. Till this license issue is sorted, uncertainty remains. The regulation of companies offering payday loans is not clear.
You are able to get a payday loan very easily and there is a tendency to splurge on unnecessary items. You got to remember that this money needs to be repaid with around 1% interest a day. This could lead you to the debt trap. Even if you are able to repay the payday loans on time, you feel like borrowing again and again. A few bad days and you are in the loan trap.
Payday loans are last resort loans and they make sure, you really pay for them. Why not borrow from friends, relatives and family when you need money for an emergency? The money can be repaid in installments and with little or no interest. This too is borrowing of the last resort, as money should never be mixed with relationships. Be Wise, Get Rich.
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