Sometimes, you need funds quickly to meet urgent personal expenses like travel, wedding or medical costs. You might be able to afford these expenses, but you might not have liquid cash. Banks provide short-term unsecured loans like Personal Loans and Payday Loans to meet this need.
But, should you get a Payday Loan or a Personal Loan? Understand the differences between Payday Loans and Personal Loans to make an informed decision.
What are Payday Loans?
Payday Loans are short-term, unsecured loans with extremely high interest rates. Banks offer Payday Loans based on your monthly income. For instance, if you earn ₹40,000 each month, the bank will offer a Payday Loan of ₹25,000 or 62.5% of your pay. You must repay the money with interest as soon as you receive the salary. The payback time is extremely short, typically less than 30 days.
Payday Loans are sometimes criticised for being predatory. Because these loans are risky for the lender, they impose enormous interest rates without caring about the borrower's ability to repay them.
What are Personal Loans?
A Personal Loan is not provided for a specific purpose, like a Car or Home Loan. You can use the proceeds to cover any personal expense and repay them with interest over time. You can use the money for weddings, house repairs, travel and unexpected medical bills.
Banks decide your Personal Loan eligibility based on your credit score, income and loan repayment track record. The repayment time is longer than that for Payday Loans.
If you need money for your personal expenses, you can apply for a paperless Personal Loan from Axis Bank. You can get a Personal Loan of up to ₹40 lakh and repay it within 12 to 84 months. Take advantage of quick processing, competitive interest rates and flexible repayment plans.
Payday Loans vs Personal Loans: Key differences
Payday and Personal Loans were created to meet customers' short-term financial needs, but their features differ. Here are the major differences between Payday Loans and Personal Loans.
| |
Payday Loans |
Personal Loans
|
| Duration |
You are expected to repay your loan with your next salary. So, the repayment period is quite short, usually less than 30 days. |
Personal Loans have longer repayment periods. Axis Bank, for example, offers Personal Loans with tenures ranging from 12 to 84 months. |
| Eligibility criteria |
Payday Loan lenders do not set strict eligibility criteria for lending. |
The eligibility criteria for getting Personal Loans are stricter. Before approving the loan, various factors are reviewed, like credit score, credit history, income, etc. |
| Cost |
They are quite expensive. The interest rates are very high, and lenders charge additional hidden fees from borrowers to compensate for the high risk. |
Personal Loan interest rates depend on your creditworthiness. However, the interest rates are lower compared to Payday Loans. |
Also Read: Top 10 reasons for getting Personal Loans
Summing Up
Payday Loans vs Personal Loans - which one is better? Payday Loans have been criticised by many for their extremely high interest rates. Because of the high charges, it is easy to get into the "debt trap", where you must continue to borrow more to pay off your existing loans. As the eligibility criteria are lenient, lenders provide Payday Loans without considering your repayment ability. You should only get a Payday Loan if you are absolutely sure that you can repay it on time. Otherwise, a Personal Loan is a quick and safer alternative.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
