A payday loan is a category of short-term borrowing where a borrower borrows high-interest loan in comparison to his income and credit profile. More often than not, the short term credit’s ‘principal’ forms a good portion of borrowers subsequent paycheck. Also known as cash advance loans or check advance loans, a higher interest rate is charged on them in comparison to other loan categories. The financial pundits often express caution to potential borrowers owing to its predatory nature and hidden provisions that burden the borrower with additional fees. Even though at first they may seem to be the best option, attributed to the limited conditions imposed by them, there have been instances where the borrowers have fallen into a debt trap, due to ill financial planning with such financial instruments. Other financial tools such as the Pocket Personal Loans available on Finserv MARKETS provide the benefits of short-term loans without worrying about the high interest rates. Utmost transparency is maintained, and with attractive interest rates and a quick, DIY online process, it even becomes extremely convenient and flexible to opt for a Pocket Personal Loan.
What is a credit check?
A credit check is precursory to the loan application where a borrower’s credit health is analysed and assessed before disbursement of the loan. In India, a credit score — issued by four credit bureaus(CIBIL, Equifax, HighMark and Experian)– is considered as a proxy to an individual’s financial health. CIBIL being the oldest bureau, is the most popular choice among lenders. Your credit score is seen as a direct pointer of your credit health. The number of loans and types of loan accounts, outstanding debt, and length of credit history plays a significant role in determining your credit score. With a higher credit score, lenders are usually more comfortable lending their money to you.
Does payday loan require a credit check?
Lenders, apart from checking your annual wages, usually rely on the credit score to obtain a more comprehensive profile. Although a similar process is followed for most loan applications, online payday lenders give more importance to your current financial situation than your past credit record. This effectively means that at a time when a traditional money lender may hesitate to provide you with a loan, owing to a teetering financial past, payday lenders will be more interested in your present financial transactions. However, this does not mean that anyone with a low credit score, but a decent wage will be guaranteed a loan.
There are other eligibility requirements listed by lenders according to their lending policy. Although the payday loan may seem easy and luring, caution must be exercised as owing to a higher rate of interest, the issue of debt refinancing pervades among the borrowers. At such an instance, a payday credit does more damage than good. It habituates you to borrow money to repay the debt, and often the cycle repeats. In many cases, to surpass the need of credit check, many creditors, after examining the current financial condition of the debtor automate the payments from the borrower’s bank account. Today many banks offer overdraft facilities to its customers. As a result, if a withdrawal attempt by an online payday lender results in overdraft, borrowers face steep bank fees that further raise the financial burden.
Payday credit often becomes a source of money for genuine defaulters that otherwise follow a financial discipline. For such a cohort of borrowers, beset with a low credit score, this option becomes attractive. In India, due to the real-estate debacle, many genuine borrowers became a victim of a low credit score. Thousands of them exhausted their life-time savings to own a house, a basic yet essential desire. The home loans that were taken for these properties, today stands unpaid for apparent reasons.
If you require credit for personal reasons, you could opt for a payday loan , despite your credit score not being up to par. An even better option is taking a personal loan on Finserv MARKETS, which provides credit at a lower rate of interest and as eligibility demands a minimum salary according to the city in which you are living. You can easily avail a personal loan if your take-home salary is greater than Rs 37,000/- and Rs 27,000/- in Tier 1 and Tier 2 cities respectively. Moreover, repay your Personal loan in easy EMI’s spread over 12-60 months. With instant disbursement of upto 25 lacs, personal loans on Finserv MARKETS ensure that you start living your dream today.
With a higher CIBIL score, lenders are usually more comfortable lending their money to you. You can also check CIBIL score for free using our smart financial health check tool.
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