For most of us, salary is the primary source of income, using which we fulfill our daily needs and ensure financial security. But, one of the biggest disadvantages of salary is, they are fixed, while the expenses are not.
There are times when the expenses turn out to be more than our monthly salary, and at such times, our savings can bridge the gap. But, not always, we have that kind of flexibility to depend on savings to cover for the increased expenses.
In such a situation, many choose to borrow from friends and family members or take a loan from informal moneylenders. However, such solutions prove to be quite inconvenient in the long run.
This is where Personal loans can help. There are also other forms of loans, such as a Salary Advance Loan, a form of short-term unsecured loan, which you can avail to cover the expenses. But what is the difference between an Instant salary loan and regular personal loans? Let’s discuss these products in detail.
Salary Advance Loan
As the name suggests, it’s an advance against salary, in which you can avail a loan amount of up to 3 times of your net monthly salary with loan tenure between 12-15 months.
A salary loan comes in handy at the time needed and is easier to get compared to a personal loan. A person with a moderate credit score can also avail of a salary loan without any hassle and less documentation.
Must Read: How Much Personal Loan Can You Take On Your Salary?
Salary Advance Loan vs Instant Personal Loan
- Accessibility: A salary advance loan is a short-term loan extended only to salaried professionals, whereas an instant personal loan can be availed by salaried as well as self-employed professionals.
- Utility: A salary loan is suitable for individuals facing a cash crunch for a smaller amount, and can be used for covering immediate, urgent expenses, usually to fill in gaps for requirements, and can be easily repaid within less than a year. . Whereas, an instant personal loan can be used for varied purposes, both short term and long term and comes with a flexible loan tenure of 12-60 months. Fullerton India provides instant personal loans upto INR 25 lakhs depending on the applicant’s eligibility.
- Eligibility: A salary loan is given to an individual with a steady source of income so that the loan amount is easily repaid. There is also a minimum income criterion that depends on the lender. The biggest advantage of a salary loan, one can avail of it with a moderate credit score. The personal loan eligibility are similar, except that the minimum CIBIL score required is higher, usually 750 or more.
- Rate of Interest: Salary advance loans have a much higher rate of interest compared to a personal loan. In general, the Annual Percentage Rate (APR) for salary loans ranges between 25-50% and the interest rate is calculated monthly. On the other hand, personal loan interest rates are calculated on a per annum basis, thereby making the loan less expensive.
Pros and Cons of Salary Advance Loan
Pros of Salary Advance Loan
- Quick and Easy Source of Finance: Generally, a salary loan is disbursed within a few hours of applying and is a complete paperless verification process. This feature helps you to efficiently manage any kind of financial emergency that requires urgent attention.
- Collateral Free: Since it falls under the unsecured loan category, borrowers are not required to provide any collateral against the advances.
- Shorter Tenure: You can pay off a salary advance loan within less than a year. This is beneficial if you need a small amount and are just waiting for your salary to be able to pay off the loan.
- CIBIL Score: Salary advance loans require a lower minimum CIBIL score when compared to personal loans.
Must Read: How to Get a Personal Loan if you have Low Salary?
Cons of Salary Advance Loan
- High-Interest Rates: The interest rate on salary loans is the highest among any loan category in India. While the interest rate advertised may seem in single digits, what you must know is that they are calculated on a per month basis, which usually causes the APR to range between 25-50% per annum. This means that your EMI will be much higher. You can check your loan EMI details by using an online Personal Loan EMI calculator, which is freely available on the lender's website.
- Can Result in a Debt Trap: With less cash inflow and high outflow in terms of higher EMI, if the loan account is not managed properly, it can result in a debt trap.
Salary Advance Loans can be highly beneficial when facing a financial emergency or in urgent need of cash. However, it should be treated as an option of last resort, due to the costs involved and mismanagement can lead to over-borrowing. If you need a larger amount and would like to pay it off in easy EMIs which can conveniently fit within your budget, a personal loan is the best choice.