Need of finance may arise anytime, anywhere without any warning. Money has become the ultimate powerful thing to survive anywhere in the world. Whether you are salaried, self-employed, student, unemployed, or just a human being you may require finance all of a sudden.

There are multiple financial solutions options but you have to abide by so many terms and conditions to avail them. Further, the process also leads to a tedious verification process, and your purpose of getting instant cash gets defeated.

In the case of instant cash requirements, a payday loan is a great option, especially for low and medium-income groups.

If you are the type of person who ends up having all your money spent on the month’s end and does not have any alternate source of finance, a payday loan could be a game-changer.

What Is A Payday Loan?

It is a type of small funding option that is getting popularity for being instant. The easy availability of the loan is quite tempting for many people.

It mostly comes with ultra-short payment tenure that is why the name payday is called.

As it is available to the person on short notice, there is always a high interest as the lender has to cope up with high risk.

Some people also call it cash advance loans or check advance loans in other words.

Salient Features Of Payday Loans

Fast approval

In general parlance, a person requiring a loan has to apply through proper channels with all the supporting documents. Application and documents go through the verification process and if found eligible, then the final amount is disbursed.

But the payday loan works just opposite to that and the major focus is given to providing the disbursal at the earliest with fewer layers of verification.

Fast disbursal

Despite getting the approval, the disbursal process takes time. In banks and other financial institutions, multiple departments work in sync for providing the loan to the applicant.

Those departments take time to completion of their assigned work. Approval is done but the file goes to the disbursal department for finally depositing the amount to the lender account.

Payday gives instant approval and disbursal to any accounts of the customer’s choice.

No question asked on use

For availing a home loan from banks, you will need to submit documents that you have rightly spent the amount in home construction, purchase, or reconstruction. The same principle applies to various types of loans such as vehicle loans, personal loans, business loans, educational loans, and others offered by banks and other financial institutions.

Organizations providing payday loans do not exercise any control over the end use of your taken loan. Spent as per your preference and requirement. This multifaceted nature of payday loans helps in attracting more customers.

No pledging of any asset

Payday loans are called unsecured products so the customer is not required to submit documents of any collateral. Payday loan disbursing companies just ask for information to ascertain your ability to pay back the taken amount.

No guarantor required

A guarantor is a person that promises to pay the loan amount in case the primary customer is unable to pay back the loan. You can imagine, arranging this type of guarantor is difficult for a student, self-employed, or anyone without much social stature.

Despite fulfilling the eligibility criteria, you need to ask your near and dear ones for being guarantors to your loan. This is quite time-consuming and tiresome for someone looking to avail urgent cash.

Payday loan saves you from these hassles and you are independent to take a loan as per your choice without the need to convince someone else.

Eligibility Criteria

• The payday loans follow the eligibility criteria of traditional loans barring the stringent document requirements.
• The applicant must be 18 years of age and beyond.
• Need supporting documents to prove the loan paying ability. If the applicant is salaried, they need to submit the salary slip.  Any other documents to supplement the income may also be asked.
• Availability of active bank accounts for receiving the loan amount and to pay back the loan.
• Valid identity card to prove the citizenship of the country you belong.

Documents Required

The list of documents varies between organizations. It also varies on level of risk, loan amount, nature of income, and other parameters. Most companies ask for these documents :

1. Identity proof : Identity card, Passport, Overseas Passport, Voter card, Driving license, Birth certificate, passbooks/statements with photo issued by any recognized banks, Employee card issued by the government.
2. Residents proof : Electricity bill, water bill, credit card statement, lease agreement or mortgage statement, postpaid bill, or any other where the address could be authenticated.
3. Income proof : Salary statement, income tax return documents.
4. Letter from the current employer (Optional).
5. Passport-sized photographs – 2 or 3
6. Age proof like identity card, birth certificate, educational certificates and others.

The Disadvantages Of Taking The Payday Loan

The eligibility criteria and document requirements are easy for the payday loan as compared to the other forms of credit. But that is not without any disadvantage.

1. A payday loan is also called an advance salary so when you get any things in advance, that will surely come with a cost. The easy and instant availability of cash lure borrower and they fall into the trap of spending more than they earning.
   Always note that you require paying back the amount borrowing in any form. So payday works like a bad habit and people fall into that.
2. There is no proper control or authority over the market as the payday loan disbursal companies do not fall under any financial framework. There is no control of any regulator on those companies which leads to harassment of many types in the hands of agents working for those payday companies.
   It has been brought out to the public through media that agents took various harsh steps to recover the money paid as a payday loan.
   It is also true that some companies are authorized for this service, but you need to look for those companies.
3. There are no proper grievance mechanisms in the payday loan market. You fully trust the company and in case of any issues, you are left with the only option of running from pillar to post. You do not get any proper complaint redressal system.
4. It is very easy to create a website without much investment and through the process. What if any scrupulous person made a website to lure a gullible person in the name of a payday loan company? So finding out the right and wrong is quite difficult for a layman.
5. Despite charging high interest rates, companies ask for processing fees, pre-closure charges, late fees, and many more. The hidden charges are also there that are not disclosed to the borrower at the time of application, approval, and disbursal.

How Can You Apply For A Payday Loan?

Proper knowledge about the various features and ways of payday loans helps you in garnering a better rate. The market has various companies offering the same plan with various twists.

In the normal scenario, most of the companies offer online and offline modes for granting payday loans.

Offline process

1. Located the physical address of the company and visit there for obtaining the applications form.
2. In the case of Kotak Mahindra Bank of India, you require to submit the duly filled form with all the supplementary documents and submit it to the branch. Based on the criteria, you will receive the application acceptance status.
3. After that, your loan applications go through various processes and finally get approved.
4. Once your payday loan is approved, the lender asks for the account details. If submitted earlier with the application form, you will get the amount credited to your bank account.

Online process

Here the process goes just like the offline one but you do not require visiting anywhere else. This is a good option as you can compare between many payday loan services providers by sitting at your home.

Once you settle on a particular company, look for apply online application from official website.  Here too, we are taking the example of Kotak Mahindra Bank.

1. Look for https://www.kotak.com/en/personal-banking/loans/payday-loan.html through your web browser. Read the various information provided on the page.
2. Look for the check eligibility section and click on that. It will take you to another page where you enter your mobile number, date of birth, and OTP (received on your mobile phone).
3. Fill in the asked information and attach the documents. Once you apply, an application number is generated for further tracking of the loan application.
4. Based on your eligibility criteria, documents, and other factors, banks of the companies send their agents for physical verification of the documents. This is not a mandatory step but most companies do that to avoid default risk.
5. You may be asked to verify your identity through advanced ways like video calling, mobile pin-based authentication and more.
6. After verification, your loan application gets approved and the amount gets credited into your provided bank account instantly.

Time Limit To Return Payday Loan

Try to understand the business principle of payday loans. It is a good way for companies to earn high-interest rates so they will not force you to pay unless they see any default risk.

The main motive of offering payday loans is to earn interest rates, so companies give short to long duration’s payday loans.

Most of the payday companies give loans for the durations between one week to 14 weeks. In case you have planned to take a loan for longer durations, it is advisable to look for an alternate source of loan.

Alternatives For Payday Loans

We understand that cash requirements may arise anytime, anywhere and that is why people look for payday loan options. But do you know, you also have some other alternatives that give the same benefits with little or no disadvantages of payday loan.

There are also some alternative ways to get an instant and quick loan. People run towards Payday loans instead of trying some other alternatives.

Borrow money from a credit union

Opposite to the traditional banks, credit union gives loan on cheaper rates as they work on not for profit and member-only principle. You have to become a member of those banks for availing yourself of the instant loan facility. Ask your colleagues, friends, and family members for the availability of these credit unions for you.

So if you are a student of a university, there might be some credit union dedicated to only students of that university or for every stakeholder of the university.

Create a lending circle

Take help from your friends and later help him or them. This is called a lending circle. This is might not be useful at the last moment but when you made a circle well before for exigency, it turn out to be a good alternative.

One time borrowing from near and dear ones

It’s a good way for those who come across cash crunch not so often. If you are a habitual borrower, these alternatives might not apply to you as most people will avoid giving money in the anticipation of default.

Still, you can give a try to your closed ones before applying for a payday loan.

Look for some alternate and fast ways to earn money

If you have some skills like painting, singing, writing, designing, or anything else, try to earn some quick cash through that. You can call your contacts besides using the power of the internet for looking for clients. Freelancing is a good way for alternate money management.

Try your hand into freelancing and who knows, it will turn into a constant source of income for you in the future.

Make use of credit card

A credit card gives you interest-free money when you purchase it. Try to convince all the merchants to use credit cards. That way, you can save some liquid cash for exigencies by using a credit card in between for purchases.

Credit card companies also offer cash on call, and cash withdrawal facilities. Compare its interests with the payday loan and if found suitable choose the credit card loan.

Apply for financial assistance or seek help from non-profit organizations

Depending on your earning ability, you might be eligible for some sort of financial assistance program. It varies from country to country but you can look for those options.

Alternatively, contact the local NGOs working in the sector of providing help to the needy. If they will found your case genuine, you may get some respite from taking a payday loan.

Opt for gold loan or loan on any other collaterals

Ideally speaking mortgaging anything for the loan is not a good way, but when you are running against time and require instant cash, you can try this option. Contact any non-banking or banking institution for availing of the gold loan. You require to pledge the gold you have,  and based on that, the institution offers a loan. The interest rate is low on that so you can choose in case of having some not so useful gold in your possession.

Impact Of Payday Loan On Your Credit Score Or Vice Versa

There is no fixed rule on the impact of credit score in case you are taking a payday loan. There is various credit score providing companies those follow varies norms and policies. A payday loan is still under active consideration in the financial segment and not all providing companies report details for credit scores.

In case you are opting for a pay day loan, it is advisable to gather some details about the company. Also enquire, whether they report the details to the credit score companies or not.

On other hand, companies ask for credit scores to satisfy your eligibility criteria.  Indeed, the credit score does not play many roles in your application acceptance and rejection probability, but it plays a role in many cases.

If your credit score is good, even payday loan companies consider this fact and offer a low rate of interest or some added benefits on your payday loan. There is no harm in submitting the credit score with the application if it has a good score.

Ways To Pay EMIs Of Payday Loan

A payday loan works mainly on the fact of convenience and instant so it offers a variety of payment solutions to the customer for the payment of EMIs.  All the payday loan providing company offers multiple ways for EMIs payment.  Here we are taking an example of the Kotak Mahindra Bank Payday loan for better understandability of the reader.

Online

1. Locate the authorized website for the payday loan-providing company
   e.g. https://www.kotak.com/en/home.html. On top, you will find the make payment section.
2. Under the make payment section, choose “Loan EMI payment”. Click on that and it was asking you for some disclaimer.
3. Here, you need to follow four steps. Reading terms and conditions, providing your loan account number, payment confirmation, and receiving online confirmation.
4. Enter the details as loan account number, name, amount, and others.
5. Proceed on the payment for making EMIs payment through debit card, credit card, online, and wallets, and others.
6. Enter your payment details and based on the authentication process, your EMI payment will be done.

Offline

Visit the physical address of the company and fill-up the form for EMI Payment. There you might get the option to pay via cards, cash, cheque, and other payment methods.

Other methods

Some companies also offers direct cash transfer facilities for EMI payment through internet banking, mobile banking, and branch banking. A cheque payment facility is also available at branches.

In case you are availing payday loan from any other provider, It is advisable to ask about the availability of EMIs payment methods to avoid future inconvenience.

FAQS

What are the minimum and maximum limits for availing payday loan?

The minimum and maximum limits vary from company to company. Most of the companies offer payday loans in the range of $30 to $2000.

Can an unemployed person take a payday loan?

No, ideally, companies ask for a regular source of income. However, some companies also give payday loans to unemployed people mainly students based on other factors. Interest rates go higher for that scenario.

What are the major charges those are paid on a payday loan?

Processing fees, late payment charges, pre-closure charges, and interests are major charges charged by payday companies.

What are the major reasons for payday loan application rejection?

• The applicant does not fulfill the document requirements.
• The income is not enough for making you eligible for a payday loan.
• No constant source of income.
• Not having any bank account for crediting the payday loan.
• High outstanding payday loans to the same company or others
• Criminal cases against the applicant

Are payday loans legal?

There is a thin line between the legal and illegal status of payday loans. When we talk about the USA, 27 states have legally allowed the payday loan whereas 9 others have allowed some sort of short-term lending with many restrictions.

Approximately, 14 states have completely forbidden the payday loan. We advise you to check the legal status based on your citizenship and residence for a better understanding.

What if, someone is not paying the payday loan?

Companies are empowered to take various legal and financial decisions in that case. Defaulting on a payday loan may trigger the draining of your bank accounts along with other measures.

You get collection calls and have might spend a day in court for settlement. You might get disturbed by the collection agents many time in a day.

Conclusions

Just like any other offering, a payday loan too has some pros and cons. Despite being new to the market, it has gained a good amount of popularity among all segments of people.  Hopefully, you have all got all your questions on payday loans cleared here.