written by | May 24, 2022

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Table of content


Table of content

Salary Advance Loan- Meaning, Pros, and Cons

Money is essential for humans to survive. It is nearly impossible for anyone to live without money in today's time. At the end of every month, a person working somewhere receives a monthly salary, but it has been observed that the monthly salary received by the person is not enough to fulfil all their demands. By the end of the month, they end up exhausting the salary that they got during the starting of the month. When such situations arise in a person's life, a salary advance loan comes to his or her rescue. A salary advance loan facilitates a person's need for money by giving an instant amount against his or her salary, which can be reimbursed after some time a person receives his monthly salary. Let us read and understand the concept of salary advance loan through this article.

Did you know? 

In a salary advance loan, you can take up a loan 3 times with loan tenure between 12-15 months.

A salary advance loan is an amount of money which is given against a salary using which a person can take up a loan value of up to three times his or her net salary with a loan period ranging between 12 months to one and a half years. A salary advance loan is much easier to avail as in comparison to a personal loan in times of need. A person with a light credit value can also take up a salary advance loan without facing any obstacles and with minimum documentation.

Also Read: What is PF Loan? EPF Loan - Eligibility, Process, Interest Rates

Salary Advance Loan vs Instant Personal Loan

The following points can be considered about salary advance loan vs instant personal loan.

  • Ease of access: A salary advance loan is extended only to salaried workmen for a short period of time. 

On the other hand, an instant personal loan is offered to self-employed as well as a salaried workmen.

  • Usefulness: A salary advance loan is apt for people facing the wrath of a cash crisis for a smaller sum of money and can be put to use for taking care of immediate and urgent expenditure and is also used to fill in the void for requisites and thus can be subtly paid back in a time period of lesser than a years time. On the contrary, an instant personal loan can be put to use in various ways for both short and long period loans and therefore comes with an alterable loan period of 12 to 60 months. 
  • Eligibility criteria: A salary advance loan is provided to a person with a stable income source so that the amount of the loan is quite easily given back. The minimum income criteria for such a transaction depends upon the lender. One of the merits of a salary advance loan is that a person can avail of such loans with an average credit score; however, the instant personal loan has similar conditions except for one, which states that the least CIBIL value should be higher, usually more than 750.
  • The nuance of interest rates: A salary advance loan has an interest rate t which is quite larger than a personal loan. If seen in general, the yearly percentage rate for salary advance loans usually lies between 25% to 50%, and the rate of interest is figured out on a month-wise basis. On the other hand, an instant personal loan has interest rates figured out on the basis of per annum, leading to the loan being cheap. 

Merits and Demerits of Salary Advance Loan

Merits of a Salary Advance Loan

  • Quick and straightforward sourcing of finance: A salary advance loan can be obtained in cash in less than a few hours of application and is, therefore, an utterly paperless verification procedure. This feature of a salary advance loan facilitates efficient management of whatsoever type of financial crunch that requires emergency action.
  • No security needed: Since a salary advance loan lies under the unprotected loan criteria, people who take up this loan are not supposed to give forth any security against the amount of money to receive in advance.
  • A short period of loan repayment: A lender can repay a salary advance loan in a specified time period of fewer than 12 months. This advantage of a salary advance loan is quite beneficial for a lender if he or she needs a smaller amount and is only waiting for his or her salary to get credited into his or her account to pay back the loan.
  • CIBIL value: A salary advance loan requires a very low minimum CIBIL value compared to Instant personal loans.

Also Read: Restructuring of Loans Explained With Loan Restructure Meaning, Benefits & How It Works

Demerits of a Salary Advance Loan

  • Higher interest rates: A salary advance loan has high rates of interest among any other loan classification in India, even though the interest rates put forth for salary advance loans appear in the single digits. They are figured out monthly, which leads the APR to be positioned between 25 to 50% yearly. This indicates that a lender's EMI would be quite high. A person can also check his/ her loan Equated Monthly Instalment details by using an instant personal loan EMI calculator, which is mostly available free of cost on the lender's website.
  • It can also result in a vicious cycle of debt: A salary advance loan can also result in a vicious cycle of debt if the loan balance is left unmanaged. This usually happens because of lower cash input and higher output in terms of high equated monthly instalments. 

Conclusion

A salary advance loan is thus quite beneficial and comes in handy for all those employees who run out of money towards the end of the month and need some extra amount to fulfil their commitments. On the other hand, we see that an instant personal loan is not very helpful since it has high rates of interest and a more extended period for paying back the loans; therefore, it is not very feasible for employees to take up such loans and they go for salary advance loans in such circumstances. The article has already focused on the process and cons of a salary advance loan and has also discussed the pointers separating it or differentiating it from instant personal loans due to its valuable points. Hence we get to see why salary advance loans are popular amongst employees.

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FAQs

Q: What type of loan is a salary advance loan?

Ans:

A salary advance loan or a payday loan is a loan which is provided to borrowers and must be repaid in whole or in instalments when the borrowers receive their salary. The amount sanctioned as loans is generally small and is based on the gross amount the border earns for each pay he receives.

Q: What is the importance of a salary advance loan?

Ans:

There is quite a minor importance in a salary advance loan.

  1. A salary advance loan helps increase employees' productivity and focus
  2. When a company provides financial assistance to its employees, it boosts their happiness and productivity and increases their focus at work.

Q: Explain the working of a salary advance loan.

Ans:

A salary advance loan is a type of loan that has repayment terms. When it comes to paying back the loan, a specific part of the salary is deducted from the employee's future salary. But an employee's business is not required to provide payroll advances to the.

Q: Is taking a salary advance loan good?

Ans:

When people take loans from banks, typically, it takes up to 7 to 15 working days to approve a loan and transfer the amount into the applicant's bank account. But a salary advance loan does not require much time, and the process is also done online. During times of emergency, a salary advance loan comes in handy and is considered to be the best option.

Q: State the difference between salary advance loan and loan.

Ans:

The difference between a salary advance loan and a loan is that a salary advance loan refers to paying a worker a part of his or her salary in advance. This part of the salary paid and advance is recovered by the employer in instalments and is usually free of interest; on the other hand, alone is offered by the employer at a rate of interest which is relatively less than the market.

Q: State the differences between an instant personal loan and a salary advance loan.

Ans:

The following are the points of difference between an instant personal loan and a salary advance loan:

  1. A salary advance loan is given forth to a salaried employee on a short-term basis. On the other hand, an instant personal loan is offered to both self-employed people and salaried employees on a long-term financial basis.
  2. Banks offer instant personal loans at high rates of interest. By looking into a person's credit score and financial profile, a salary advance loan is offered at low-interest rates and is ideal for cash strapped individuals who won quick and easy loans.

Q: What is better: a salary advance loan or an instant personal loan?

Ans:

A salary advance loan is preferred over an instant personal loan because of the following reason.

When there is a scenario of inflation or increased expenditure, it is preferred by people to take up a salary advance loan because it is difficult to pull through the entire month with their salary as they receive the salary at the end of every month. Even though a fixed some at the end of every month guarantees financial security, sometimes there are chances that a person can face a shortage of money due to unforeseen circumstances. In such situations, a person is forced to take up some credit that helps him or her in dealing with any unforeseen emergencies such as sudden medical expenditures, family events, or relocation to a new city.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.