Payday Loans

Mid-month financial emergency?
Payday loans in India offer a quick financial solution in times of need. However, understanding their benefits, risks, and considerations is crucial. Read further to know how payday loans help to uncover your financial needs and potential pitfalls.

What is PayDay Loan? How Does It Work?

A payday loan functions by providing borrowers with quick access to small amounts of money for a short period, typically until their next paycheck. Here's a concise understanding of how payday loans ‌work:

Application: Borrowers apply for a payday loan, providing proof of income, a bank account, identification, and other necessary documentation.

Loan Approval: Upon approval, the borrower receives the loan amount, which is often based on their income and the lender's policies.

Repayment Terms: Payday loans are usually due on the borrower's next payday, typically within two to four weeks. The borrower provides a post-dated check or authorizes an electronic withdrawal for the loan amount plus fees.

High Fees and Interest: Payday loans carry high fees and interest rates, making them an expensive borrowing option. The annual percentage rates (APRs) can be extremely high, often several hundred percent.

Debt Cycle Risk: If borrowers can't repay the loan in full by the due date, they may opt to pay fees to extend the loan. However, this can lead to a cycle of debt with additional fees and higher interest rates.

Potential Rollover: Some lenders offer rollover or renewal options, allowing borrowers to extend the loan by paying fees without reducing the principal amount. However, this further increases the overall cost of borrowing.

Payday Loan Lenders

Below are the two tables that outline some top banks and nbfcs providing instant payday loans, their services, terms, and availability.

Payday Loans by Banks

Banks Interest Rates (p.a.)
State Bank of India 10.55% – 14.55%
ICICI Bank 10.65% onwards
Bank of Baroda 10.10% onwards
Punjab National Bank 10.40% – 16.95%
Canara Bank 10.65% – 15.65%

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Payday Loans by NBFcs

NBFCS Interest Rate
Muthoot Finance 14% p.a. onwards
Tata Capital 10.99% p.a. onwards
Bajaj Finance 11.00% onwards
StashFin 11.99% p.a. onwards
Faircent 9.99% p.a. onwards

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Payday Loans Fees & Charges

Urgent Pay day loans are designed for short-term needs, and here is the table that shows the breakdown of fees and charges associated with instant payday loans is essential for borrowers to know for better management of their repayment effectively

Interest rate 10% per annum onwards
Loan Processing Fees As per loan amount starting at Rs.199/- onwards only
Stamping Charges Applicable as per the respective State's Stamp Act
Overdue Interest Charges 2% of the overdue amount monthly from the date of amount falling due
Late payment Charges Rs. 300 +applicable taxes(Including GST)

Eligibility Criteria for Payday Loans

Understanding these basic eligibility criteria is key to swiftly securing assistance during urgent financial situations.

Age: Typically, you must be at least 18 years old (may vary by location).

Citizenship: You must be a citizen or permanent resident of the country or region.

Income: The borrower should have an income of around ₹15000

Credit Score: Should be more than 650

Payday Loan Calculator

A payday loan calculator helps users estimate the total repayment amount and associated costs when considering a payday loan or fast cash loan. Users input the desired loan amount, the interest rate charged by the lender, and the loan term, typically ranging from a few days to a month. The online EMI calculator computes the total repayment, including the borrowed amount, interest charges, and fees. Just enter the total loan amount (including fee & chrages), tenure & interest rate to calculate the EMI.

Monthly EMI 86
Principal Amount 1,000
Total Interest 32
Total Amount 1,032.00

Year Month Principal (A) Interest (B) EMI (A+B) Balance Loan Paid to Date (%)

Some calculators might display a repayment schedule for better understanding. This tool assists borrowers in comparing different loan options, understanding the financial implications, and assessing affordability before committing to a payday loan.

Documents Required for Payday Loans

The documents required can vary from lender to lender. However, in general, the following documents are required to apply for a Payday loan.

Identity Proof: Aadhar Card, Passport, Voter ID, Driver's License, PAN Card

Address Proof: Utility bills, Driver's License

Income Proof: Salary slips for the last 3-6 months, Form 16 and Income Tax, Returns for the last 2-3 years, Bank statements for the last 6 months

Photographs: Recent passport-sized photographs of the applicant.

Payday Loan Tenure

The tenure, or duration, of a payday loan typically ranges from a few days to a few weeks, aligning with the borrower's next payday. These loans are designed as short-term solutions to cover immediate financial needs until the borrower receives their next paycheck. The repayment date for payday loans is often set on the borrower's next payday, which could be within a few days to a month from the date the loan is taken out.

Payday loan tenures are generally short ranging from 7-6 days as emergency, quick-access funds. However, some lenders might offer extensions or rollovers that allow borrowers to extend the loan tenure, but this often involves additional fees and increased interest rates, potentially leading to a cycle of debt.

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Features & Benefits of Payday Loans for Financial Emergencies

Features and benefits of urgent payday loans for financial emergencies include

Quick Access to Funds: Payday loans offer rapid access to cash, often within 24 hours of application approval, assisting in urgent financial situations. Instant money loan can be obtained online with faster loan approvals.

Minimal Eligibility Requirements: These loans have fewer stringent eligibility criteria compared to traditional loans, requiring basic documentation like proof of income and identification.

Short-Term Solution: Suited for short-term needs, payday loans bridge the gap until the next paycheck, preventing prolonged financial stress.

Short-Term Solution: Suited for short-term needs, payday loans bridge the gap until the next paycheck, preventing prolonged financial stress.

Flexible Loan Amounts: Borrowers can typically request varying loan amounts based on their needs and income, often ranging from a few hundred to a few thousand dollars.

No Collateral Required: Payday loans are usually unsecured, eliminating the need for collateral, making them accessible to individuals without significant assets.

Improved Credit Access: Timely repayment of payday loans may positively impact credit scores, enabling better access to credit in the future.

Usage Flexibility: Borrowers can use payday loan funds for various emergencies, including car repairs, medical bills, or unforeseen expenses, providing financial flexibility.

Does Payday Loan Help to Improve Your Credit Score

Payday loan improve credit scores, consider building a positive credit history through responsible use of credit cards or installment loans reported to credit bureaus, maintaining low credit utilization, and ensuring timely payments on all credit accounts.

Credit Reporting Practices: Most payday lenders do not report repayment information to major credit bureaus. Therefore, timely repayment of payday loans may not be reflected in your credit history or affect your credit score positively.

Credit Score Factors: Credit scores consider various aspects, including credit utilization, payment history, credit mix, and length of credit history. Payday loans, even when reported, might not significantly affect these factors positively.

High-Interest Rates and Short Tenure: Payday loans are short term and often come with high-interest rates. If borrowers cannot repay on time, it may lead to more significant financial stress, affecting credit scores negatively.

Lack of Long-Term Credit Building: Unlike traditional loans or credit cards, payday loans are not intended for long-term credit building. They are short-term loan solutions for immediate cash needs and are not designed to establish a positive credit history.

Credit Score Impact of Default: Defaulting or missing payments on payday loans can have adverse effects on your credit score. Late payments, defaults, or entering a debt cycle can cause negative marks on your credit report, harming your creditworthiness.

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Steps to Apply For Payday Loans

Always ensure to understand the terms, including repayment conditions, fees, and the due date, and repay the payday loan on time to avoid additional charges or complications.

Research and Choose: Explore reputable payday loan providers, comparing interest rates and terms to select a suitable lender.

Check Eligibility and Gather Documents: Review the lender's requirements and gather necessary documents such as ID, pay stubs, and bank statements.

Complete Application: Fill out the lender's application form, providing personal, contact, employment details, and desired loan amount.

Submit and Receive Funds: Submit the application online or in-person. If approved, await the lender's decision, and upon approval, receive the loan amount via direct deposit or in cash/check.

PayDay Loan Repayment Options

The availability of repayment options can vary based on the payday lender and local regulations. It's crucial to carefully review the terms and conditions before agreeing to a payday loan and understand the loan repayment options available to ensure the most suitable and manageable repayment plan.

Full Payment: Paying off the entire loan amount, including interest and fees, in a single payment on the agreed-upon due date.

Installment Payments: Some lenders offer the option to repay the payday loan in multiple installments over a series of weeks or months. Each installment includes a portion of the principal amount along with interest and fees.

Renewal or Rollover: In some cases, borrowers may have the option to extend the loan term by paying only the interest and fees due and extending the principal amount to a new loan term. This option, however, may cause additional charges and a higher overall cost.

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Frequently Asked Questions

To avail a payday loan, you can apply it online. However, the borrower need to provide proof of income, identification, and a bank account. The lender will assess your eligibility based on these factors and determine the loan amount you can borrow.

Payday loan amounts vary by lender and state regulations. Maximum amounts typically range from ₹10,000-₹15lakhs depending on factors such as your income and the lender's policies.

The minimum loan amount for payday loans also varies by lender and location. It can range from around ₹10,000-₹15lakhs more, depending on the lender's terms.

Payday loans are typically due on your next payday, often within a few weeks. The total repayment amount includes the borrowed amount plus fees and interest. The exact tenure and repayment amount depend on the loan amount, interest rate, and any extensions or rollovers.

Advantages of payday loans include quick access to funds, minimal eligibility requirements, and fast approval processes. They can be helpful in emergencies when immediate cash is needed.

A payday loan on salary refers to borrowing against your future income. Lenders offer you a loan based on your income, and the loan is typically repaid when you receive your next paycheck.

Payday loans are named as such because they're meant to cover expenses until the borrower's next payday. They're short-term loans designed for immediate financial needs.

Payday loans differ from personal loans in terms of loan amount, repayment period, and interest rates. Payday loans are typically for smaller amounts with shorter repayment periods and higher interest rates compared to personal loans.

Some banks offer payday loan alternatives or short-term lending options, but traditional banks might not commonly provide typical payday loans. Payday loans are often offered by specialized lenders or through online platforms.

If you run out of cash mid-month, consider budgeting, cutting unnecessary expenses, or exploring alternative options like borrowing from friends or family, negotiating with creditors, or considering short-term loans (like payday loans) responsibly to cover essential expenses. It's important to avoid falling into a cycle of debt and manage finances prudently.

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