Known by various terms such as small dollar loan, payroll loan and salary loan among others, Payday personal loans are loans offered to fulfill immediate financial needs and comes with a very short repayment tenure. This kind of loan is also sometimes referred to as a cash advance loan, although this term could also mean that cash is being borrowed through a credit card. Payday loans are primarily procured through private financial companies and money lenders.
The basic premise of this type of a loan is that borrowers will have to repay the loan amount with an interest on their next payday and is hence known as payday personal loan. These loans are ideal for those looking for immediate funds and are unable to raise money on their own. Lenders who provide payday personal loans usually provide these loans to customers who have employment records and are under a steady payroll.
Commonly, customers choose to avail loans from banks and financial institutions, however the primary criteria for these banks and institutions to provide loans are a good credit history and debt repayment record along with a minimum income requirement. But at times, customers do not posses a favourable credit history and in such cases lenders hesitate to provide financing, and even if they do the tenure is short and a higher rate of interest is imposed. In addition to this, approval processes are a lot longer and those looking for immediate financing will not be able to procure funds easily. In such cases, a payday personal loan is the most favourable option.
Payday personal loans are an unsecured credit option that is availed by those who are usually in immediate need of finance and who also possess a bad credit history. Lenders ensure that borrowers are salaried as they will have to repay these loans on their next salary day along with the rate of interest that is agreed upon. In order to prevent lenders from charging an exorbitant or unreasonable rate of interest, certain areas place a limit on the rate that can be charged. These loans also constitute a higher risk as compared to other secured forms of loans hence generally the interest rate charged is quite high in comparison.
For customers to be eligible to receive payday personal loans, they will have to provide their salary slips and bank statements to the lender and in some cases, proof of their employment. In many cases the lender will also ask for a postdated check for the complete loan amount including the interest amount charged. In cases where customers are unable to repay their loan on time, the lender will utilize this check and if the funds are insufficient then the borrower will also have to pay fee for the bounced check. Customers can also apply for payday personal loans online by filling in the required form and submitting it along with the necessary documents and proofs.
How do payday personal loans work?
As mentioned previously, payday personal loans are generally procured by those who are in immediate need of funds and are unable to procure it from other traditional sources such as banks. Another reason why individuals opt for these loans are if they possess an unfavourable credit record. Unfavourable credit histories make it difficult for customers to avail loans from banks as they are considered to be of a higher risk category and therefore even if they are able to procure loans, a higher interest rate is charged and the repayment tenure offered is short. In addition to this, the time taken to procure loans from traditional sources is quite long which is a disadvantage for those looking for immediate financing.
Payday personal loans are quick and easy to avail without the added hassle of extensive documentation. Also lenders who provide payday personal loans overlook bad credit histories and place importance on whether the customer is salaried or not. Customers are required to repay their loans on their next salary day along with the interest rate that is charged. Lenders often require bank details and salary slips to confirm the customer’s employment. In cases where these documents are not required, a higher rate of interest is charged. In addition to the above, lenders also require a postdated check covering the loan amount and interest amount which will be used in case the borrower does not repay the loan on the due date.
When customers apply for the loan, their application is processed immediately and funds are provided as early as the next business day itself. The amount can be used for any purpose just like in the case of personal loans. Customers can procure cash as early as possible without them having to worry about the impact of their bad credit history. There are many lenders in the Philippines that provide payday personal loans to customers and customers can also apply online for the same. The only difference with online applications is that lenders will directly deposit the money in the borrower’s account and will withdraw the money that is to be repaid on their next salary day.
Advantages of Payday personal loans
- Instant financing
- Hassle-free application process
- Credit check is not performed
- Collateral is not required
The primary advantage of payday personal loans is that customers can avail quick financing for their various needs. Regardless of the reasons such as mounting maintenance or utility bills, emergency hospital costs or overdue credit card bills, payday personal loans can be utilized. Through this option, immediate financial assistance is procured preventing customers from facing legal issues due to unpaid bills.
One of the hurdles of procuring a loan from banks and financial institutions is the extensive documentation that comes with it. These processes prevent immediate loan approvals and financing hence can be disadvantageous to those who require immediate financial assistance. Lenders providing payday personal loans do not require any extensive documentation and can furnish the required funds immediately. The main documents that are usually required are salary slips and employment proof. Certain lenders do not require these as well. Customers can also apply for these loans online thus simplifying the process even further.
Generally, before approving loans, banks and financial institutions perform a credit check and prefer providing loans to those who have a good financial history. Those with a bad credit record have a harder time procuring loans and even if they do then a higher rate of interest is charged along with limited financing. Therefore, individuals who possess a poor credit history can opt for payday personal loans as a credit check is not performed and these loans are usually provided against the individual’s next salary.
In addition to possessing a favourable credit history, individuals must also, in some cases, provide additional collateral. However, in terms of payday personal loans, collateral is not required therefore customers will not have to pledge their car, home or any other assets and even if the individual is unable to make payments on time, he/she will not have to worry about losing their possessions.
Disadvantages of Payday personal loans
- High rate of interest
- Short repayment tenure
- Full-time employment
- Terms and conditions
Payday personal loans are usually provided to those who are in immediate need to financial assistance and those with an unfavourable credit history. As these loans are quite risky for the lender, a high rate of interest is charged as compared to traditional loans. These rates of interest are charged differently depending on the lender but are usually known to be very high, so much so that there are instances wherein customers will have to procure other loans so as to repay the interest on their payday personal loans.
Payday personal loans are usually provided on a short notice and individuals are required to repay the loans within a matter of weeks and usually on the next salary day. Customers will have to ensure that their loan is repaid on the given date as failure to do so may result in an additional interest rate or fee being charged.
Lenders usually require customers to be full time employees as payday personal loans are usually repaid with the salary received by the borrower. Customers who are part time employees or paid interns may not be eligible to receive these loans.
Due to the fact that these loans are not secured and are risky for the lender, the terms and conditions that are imposed might be quite exhaustive and difficult to adhere to especially those terms related to repayment methods or the interest amount charged. Therefore a thorough understanding of these terms and conditions are imperative.
Tips to keep in mind before availing a Payday personal loans
Payday personal loans are usually procured by those who require immediate financial assistance and are unable to avail these loans from banks or other financial institutions especially due to an unfavourable credit history. In such cases the most sought after option is a payday personal loan. These loans are provided by private lenders on a short notice without the need for extensive documentation. However there are certain tips to keep in mind before opting for payday personal loans.
- As this is an unsecured loan option, the interest rate imposed on the loan is quite high and these rates vary from lender to lender. Customers are therefore advised to research on their various sources and opt for those that provide the most reasonable rate of interest.
- Customers need to also ensure that the lender is authorised in the Philippines to prevent any kind of issues later on and also to prevent an exorbitant rate of interest from being charged.
- Borrowers must also have an idea of the terms and conditions that come with payday personal loans so as to prevent future misunderstandings from happening.
- Although the financing is provided immediately, the amount provided is not very high, therefore if customers require a high loan amount then they may have to look for other sources.
- Payday personal loans have a short repayment tenure and is usually the next salary day of the borrower, therefore before availing the loan, the customer must understand if he/she will be able to repay the loan on the due date.
Payday personal loans are one of the most sought after loans available in the financial market and are procured easily. By keeping the above tips in mind and having a thorough understanding of the concept, customers can ensure hassle free procurement and repayment of these loans.