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.
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.
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.
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.