Small cash loans or payday loans are becoming increasingly common due to their simplicity and easy accessibility. For instance, when the note-ban drive disrupted the Indian economy during the last few months last year and afterward, the popularity of these “instant loans” went through the roof. People who were waiting for their salaries and trying to make ends meet availed these salary loans at a high but reasonable interest rate to get through the difficult times.
What are Payday Loans?
Simply put, a payday loan is a small loan that is given to the borrower on the condition that they will repay it the next time they will get a salary. In India, you can get a payday loan at the typical interest rate of 1% a day or as much as 30% overall. The loan tenure is also usually short 5 to 30 days.
Payday loans are a good option when you are in a cash crunch and your payday is still far away.
Although payday loans have many advantages, there are some things that you must be careful about when applying for one, such as:
A. Being Charmed by Simplicity and Convenience
How can convenience ever be a bad thing, right? Well, sometimes it can.
Payday loans are so simple and easy to get, that you can get half of your salary in advance by the time you finish your lunch at work. Don’t even have to leave the premises. You can just register yourself on a lender’s website, profile a few basic details, and they will clear your loan in less than an hour. However, there lies the problem.
Since getting a payday loan is so easy, people start using them more often than necessary. However, the interest rates on these loans are quite high; and if there are late payments then there are penalties too. You can also face problems, if you want to improve CIBIL score.
B. Ignoring Credit Rating
Payday loans are different from traditional loans. However, this doesn’t mean they can’t affect your credit score. In fact, if you are added to a loan defaulters list then you can have a hard time getting a traditional loan in the future.
If you want to improve CIBIL score, then be sure to pay your loans and credit card bills on time, including the payday loans.
C. Choosing a Non-Certified Lender
It’s easier to lean towards a lender that’s offering a competitive interest rate and a flexible repayment option. However, if they are unauthorized or un-certified, then it may not be a good idea. This is because these lenders often bend the rules, or engage in unethical practices, that could hurt you both financially and emotionally.
D. Hidden Charges
Not every payday loan lender may be as transparent with you as you want to be. For instance, there may be hidden charges such as late fees, processing fees, etc. So, be sure to enquire about these. If possible, take time reading the T&C, especially the fine print. If there are hidden charges of any kind, then it’s perhaps better to find another lender.
E. Bad Customer Service
A large number of payday loan providers offer their service online for the most part. Thus, you won’t be able to visit the company in person. This is why quality customer support is really essential. After all, you wouldn’t want to spend hours trying to connect to the customer support helpline, when you need information on late payments or any specific rules.
You can easily check the reputation and track record of a lender by doing some research online. It’s possible that you may find a review website, where old and existing customers have shared their opinions about the particular lender. It could help you come to a decision easily.
Believe it or not, loan defaulters are as common in payday loans, as in the other traditional loans such as personal loans or home loans. While there is nothing wrong with a payday loan, the lack of information has the potential to turn your life topsy-turvy in the future. So, be sure to inform yourself and make decisions after a lot of consideration.
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