Opting for a loan is a convenient manner to finance expenditure that cannot be financed out of pocket. Today, there are a host of loans that you could opt for to avail of funds for any emergencies that may come your way. But does it matter which loan you choose to opt for? Different factors like interest rate, loan term are what differentiate one from the other. Knowing the difference between payday and personal loans can help you make better informed financial decisions for yourself.
Let us understand the meaning of these terms before understanding the difference between both:
A personal loan is an unsecured form of finance that is offered by lenders for any legitimate purpose. The funds are sanctioned as per the policy of the lender and are required to be repaid as per the terms and conditions laid down by the lending institution.
Payday loans are short-term loans, also known as advance cash that are sanctioned quickly. They are expected to be repaid within a short tenure and incur higher charges as compared to personal loans.
Let us understand the key differences between Payday Loans vs Personal Loans:
|Particulars||Personal Loans||Payday Loans|
|Loan eligibility||Personal loans enable you to borrow finance up to INR 25 lakhs (based on your eligibility) which amounts to a larger sum as compared to payday loans||The upper cap of your Payday loan is the salary amount.|
|Tenure||Borrowers can opt for a personal loan tenure of 12 to 60 months||Payday loans require to be honored between two to four weeks duration, on the receipt of their paycheck. If borrowers are unable to honor the funds borrowed, they are required to renew the loan and the other associated costs into a fresh loan with a fresh set of fees|
|Documents required to be submitted||Potential borrowers are required to submit KYC documents, bank statements and income proof documents to verify their eligibility for the loan||The basic and only eligibility criteria to apply for a payday loan is that the applicant should earn a steady sum of income equivalent to the sum borrowed and should be salaried|
|Cost of borrowing||Personal loans are offered at reasonable rates of interest starting from 11.99% per annum. Lenders may also levy a processing fee, insurance and service charges.||Payday loans are approved almost instantly, however, they attract a higher rate of interest. Sometimes, the interest rate may also be calculated on a daily or weekly basis.|
Am I Eligible to Apply for a Personal Loan Online?
The eligibility criteria for personal loan are basic and are designed in a manner that maximum people can apply for a personal loan to finance their requirements. The criteria are as mentioned below:
- Applicants between the age of 21 to 60 years, self-employed and salaried are eligible to apply for a loan to finance their requirements.
- Candidates should earn at least INR 25, 000 in metro cities like Mumbai and Delhi and a sum of INR 20,000 in other towns across India.
- They should possess experience of at least 1 year in total and a minimum of 6 months in the organization that they are presently working for.
- Self-employed persons should earn a basic minimum net profit from the business depending on the trade they are engaged in.
- A CIBIL score of 750 and above is required to be eligible for a personal loan.
What Documents do I Require to Furnish while Applying for a Personal Loan?
The following personal loan documents are required to evaluate your eligibility:
- Previous 3 months’ salary slips are required to be submitted by salaried applicants
- Self-employed professionals are required to submit suitable income proofs.
- KYC documents that include your Voters ID card, AADHAR Card, etc.
- 6 months’ bank statements
- Depending on the applicant’s profile and requirements, other documents may be requested
If you do decide to opt for an instant personal loan online, ensure that you honor your EMIs on time and in full to ensure that you maintain a good credit score.