You can’t get loans with a bad credit score. Irrespective of the reasons for availing a loan, lenders consider financial history and current financial situation before sanctioning the loan. In such a scenario, should you encounter any emergencies, you can avail payday loans.
Payday loans are small loans offered to salaried individuals. If you live paycheck to paycheck, try availing payday loans. These loans can be repaid on receiving the next salary.
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What are payday loans?
A payday loan is usually a short term high cost loan, that is typically due on the next pay date. Short term generally means a few weeks. They are generally available through online aggregators or money lenders or banks. When people need money urgently, they might opt for a payday loan. The application process can be completed within minutes.
Interest rates on payday loans are quite high. These loans are offered in exchange of some proof of monthly income like a pay slip. Payday loans are also called salary loans; cash advance loans and instant cash loans.
Advantages of payday loans:
A payday loan is a quick, hassle free way of managing funds in an emergency. The loan is due on the next pay date which means the debt is taken only for a few days or weeks. Payday loans have various advantages over other credit facilities. They are as follows:
- Speed: the application for payday loans gets approved instantly if provided with necessary information. The application process is easy and hassle free. Conventional loans take time to process. But, in case of payday loans, the funds will be transferred and received on the same day. A large number of lenders offer quick services to stay competitive.
- Convenience: the processing of payday loans is conducted online. You send the application form from the home or office. You do not need to take prior appointments with the bank to avail cash. Getting loans from banks involves several meetings with the loan officer and also the loan takes time to get sanctioned.
- Few requirements: accessing a payday loan is easy as you only have to meet some basic requirements. The foremost requirement is a stable income. Also, no collateral is required to get a payday loan. The individual has to be above 18 years of age to avail the loan. Other requirements include an active bank account and address proof. You can avail a payday loan with a bad credit score as long as you can pay the money on time. Past financial mistakes do not limit you from accessing payday loans.
- Lend a higher amount: many lenders limit the borrowing amount. However once you pay your loan on time, the lender may increase the borrowing amount in subsequent applications.
Disadvantages of payday loans:
There are some drawbacks of taking a payday loan. Listed below are some of them:
- Debt trap: payday loans can lead to a vicious cycle of debts if you are unable to pay the loan on time. A large part of the profit made by the money lenders comes from those who cannot repay the loans on time and end up extending the loan. This results in exceeded amounts of loan which can lead to extreme debt.
- Deceptive lenders: there are certain companies that extend funds to the customer under the payday loan facility. As these institutions are not necessarily authorized, they can be deceptive. At times they do not disclose the detailed information or terms and conditions. So, there are chances that the lenders might harass you on the pretext of hidden clause and terms.
- More expensive than other loans: the payday loans are short term loans that have a higher APR rate compared to other loans. Because of the high costs associated with payday loans, it is very difficult to get out of them. It is important to pay the loan before the due date; else you might have to continue to pay interest that will rise with time.
Types of payday loans:
Listed below are types of payday loans and how the different loan types can affect the customer:
- Small cash loans: Such loans are mostly offered to salaried individuals only, wherein the EMI is to be paid on the pay-check date until repayment. These are short term unsecured loans that can be availed without any collateral. Lender usually charges a higher rate of interest on these kinds of loans.
- Same day loans: as the name suggests these loans are granted on the same day of loan application. This credit facility can be availed to meet emergency cash needs and requires only minimal documentation with no credit check. The interest rates of same day loans are much higher than regular loans.
- Credit card loans: Most of the banks or financial institutions offer instant loans on credit cards. These loans come at affordable interest rates. The loan is quickly approved without any documentation.
What to consider before you apply for a payday loan?
Below mentioned are some tips you must keep in mind before availing a payday loan:
- If the borrower wants to borrow a loan of higher amount, it is always advisable to look for alternative options. You can opt for a personal loan. The interest paid on the amount borrowed will be much less than payday loans.
- Before taking the loan, compare the rates of interest on the loan amount offered by other banks and financial institutions in India.
- The right kind of quick loan depends on the individual’s requirement; therefore it is important to understand the financial needs before applying for loan. You must take some time to think on whether you really need the loan or not.
Avoid getting into debt with loans:
Taking a loan is easy but getting out of it takes lots of sacrifices and years to repay. Here are a few tips to keep in mind to stay free of debt:
- Create an emergency fund: create an emergency fund that helps you stay afloat during a financial crisis. You can readily use the funds without having to borrow from lenders.
- Don’t miss your monthly payments: Once you miss a payment, your next payment will be much higher as you'll have to make two payments plus pay the late fees. It gets tougher to catch up and puts a strain on your monthly budget.
- Borrow within your budget: Borrowing more than your repaying capacity can lead to debt. Always choose your loan carefully by evaluating your current finances.
Payday Loan with Bad Credit in India
Interest rates on payday loans are quite high. These loans are offered in exchange for some proof of monthly income, for example, a pay slip. Payday loans are also called salary loans; cash advance loans and payroll loans. Payday loans are also called cash loans, instant loans and instant cash loans.
What is a bad credit score?
A credit report is a summary of all your loans, repayments and missed payments. Based on your credit report, you are assigned a score. The report is a summary of credit behavior and history.
The ideal credit score to avail a loan is 750 and above. A credit score below 600 is a bad credit score.
Reasons for bad credit score:
1. Missed Payments
Credit bureaus check for the following when it comes to missed payments:
- How late was the repayment
- How long you’ve been repaying
- Total number of payments in the credit history
A 30 day default is fine, delays beyond that are given a negative remark.
2. Collections and defaults:
If you’ve missed paying bills for seven months, your report will have the collection notation. The notations will remain in your account. Therefore, even after clearing dues, the lender will still get to look at the report and judge your credit responsibility.
3. Public records:
Bankruptcy impacts your credit score for many years. Civil judgments and tax liens stay in the report for a long time.
4. Repossession and foreclosure:
If your collateral has been seized by the lender, it implies a default in the loan repayment. Repossession means taking possession of assets other than house properties, like a car and so on. Foreclosure means repossessing a house. If the value of property is less than loan dues, a deficiency judgement will be placed on you.
5. High credit utilization ratio:
Credit utilization ratio is a measure of the total credit limit allotted to you, against the credit that you use. Using all your credit cards to the assigned limit indicates, you’re credit hungry and this negatively impacts the credit score. Therefore, it’s good to have a low credit utilization ratio, so that your credit card balances are low. With time, your credit score will improve.
SEE ALSO: Unsecured Loan
Advantages of payday loans:
- Many banks and NBFCs reject unsecured loans on the grounds of bad credit score. In such cases, a payday loan is a great option.
- The loan is approved quickly if you meet the eligibility criteria.
- You can use the payday loan for any purpose.
- You need not furnish income tax returns.
- You need not pledge collateral.
Payday Loan Eligibility:
- Meet minimum age requirements (differs across lenders)
- Have an active bank account
- Have a valid contact number
Documents required for payday loans:
- Submit income proof like salary slips or bank statement
- Identity proof
- Address proof
How to get payday loan with a bad credit?
You can avail a payday loan with bad credit in just a few minutes:
- There are various FinTech companies which offer online payday loans.
- You have to fill out the application on the desktop or phone. Details required are name, email id, contact number and a bank account that accepts electronic transfers.
- If your instant cash loan application is approved, the loan will get credited to your account within 24 hours.
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