Think of a situation where you need some urgent money. What’s going to be your natural response in such a situation? You would want to go for the simplest way out , probably a payday loan or you would have your forever friend- the credit card. This is apparently not a very smart choice. You are not aware of the new schemes which are a lot better than this and are also easily processed as well. Going for the payday loans and the credit cards is just like staying with the choice of same restaurant and eating same food every time when all you could have done is only walked down the corner of the another block and explore all new sets of restaurants which probably serve better food along with amazing ambience. Similarly, in this case the new restaurants signify the salary / personal overdrafts.
In simpler words, the personal overdraft is an account which gives you a balance when the interest isn’t calculated until you begin to use the money. Hence, you have the money and you don’t pay until and unless you use it. The personal overdrafts simply hold an edge over the credit cards or the payday loans, undoubtedly.
Understanding Payday Loan
The elementary concept about the payday loan is in its name itself. It’s a small money amount which is lent to one borrower at a very high interest rate on an agreement which is returned to the lender when the borrower gets his or her next salary. This loan period is very short and the amount depends on the employee’s salary. It’s not essential that the loan repayment is linked with the borrower’s payday. Because it’s easy to get, people don’t look for the simpler options.
Important Features of Payday Loan
1. High Interest Rate – The interest rate can be up to fifty percent. Imagine a situation where you have taken a loan of about 10,000 rupees and you pay 15,000 rupees at the end of it. This is what happens in the case of the payday loans. The rules linked with it are serious and you’ll have to return the money in the given time.
2. Short Term – These are short term loans. It means that the general time period is from thirty to sixty days. With stringent laws and high interest rate, this loan is a definite no. One can’t afford to acquire the late fees and adding to it they are less flexible as far as the days of returning and the loan tenure is concerned.
3. Principal Amount Constraint – In the payday loans, the amount which can be borrowed is quite low as compared to the overdrafts. An amount of thirty thousand rupees to forty thousand rupees is what you have at your disposition with a high interest rate and quite a short time of returning it.
4. Processing Fee – The payday loans not just come up with the high interest rate, but also with a processing fee. It’s a fixed percentage (for e.g. 20%) of the principal amount which you need to pay back to the financial institution which gave you the loan. Hence, not only are you paying the interest, you are also paying for the processing of it.
5. Applying Payday Loan Not Easy – Even though the payday loans are easily procured, the complexities lie in the ‘terms & conditions’ at the time of applying for it. You need to dip through the documents and there are no options to it.
6. Payday Loans Calculations – The payments are done on weekly or in fortnight basis. It can either be a direct deduction from the salary or your account. Imagine a scenario where you have borrowed, say 10,000 rupees at the interest rate of 4% / month for 3 months. Then this calculates your interest amount to 400 rupees per month. Hence, by the end, you are going to be paying 1200 rupees for the interest amount. Nonetheless, do not forget the processing fees too.
Credit Cards: Are They Better?
A credit card is just like that companion who doesn’t have any emotional bond with you and only stays with you for the luxury flowing from your pockets. Undoubtedly, you don’t understand that until you get cheated on with the unsentimental penalties and interest rates. Of course, you don’t want that kind of a burden or torment in your life.
Things You Should Consider While Using Credit Cards
1. Unjustifiable Rate of Interest – With the rate of interest going skies, you don’t want to go down this path. You can get charged for as high as forty percent yearly.
2. Revolving Credit – With the credit cards coming with an option of minimal monthly payment, most people stick to paying just the minimum amount for avoiding the penalties.