Instant Cash Loan vs. Payday Loan: A Comparison to Make an Urgent Decision Wisely

Updated on: 14 Dec 2021 // 25 min read // Personal Loans
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Being a salaried individual, it is worthwhile to have a monthly budget. It indeed is essential to manage your expenses and save some amount for a secure future. But sometimes, say, due to the rising cost of living or unexpected emergencies, we fail to manage financials with our monthly salary.

This is where you might need to seek alternative sources of finance to meet your requirements. There are various financial institutions that offer different types of loans for salaried individuals. Two of the most famous options being fetched by millennials these days are instant Cash Loans and Payday Loans.

However, each of these credit facility varies significantly in nature and usage, and thus it is recommended to conduct a thorough comparative analysis of Instant Loans against Payday Loans.

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What is an Instant Cash Loan?

An Instant Cash Loan can be drawn as a Personal Loan by various financial institutions, including banks, NBFCs, and online lending companies. These are also known as Instant Loans due to the short processing time and quick disbursals offered by lenders. These loans are available for urgent requirements for individuals with various credit ratings. Lenders support an easy online application process for cash loans through their website as well as mobile apps. Some of the noteworthy features of cash loans are:

  • High-value amounts of up to Rs. 5 Lakhs based on eligibility.
  • Longer repayment period of up to 60 months.
  • Available for individuals with various credit scores, starting from 650.
  • Lower interest rates as compared to credit cards, starting from appx. 15% per annum.
  • Instant approvals and disbursals, within a few hours.

What is a Payday Loan?

Although a well-established way of lending in western countries, Payday loans are relatively newer offerings in the Indian financial industry. These loans are meant only for short durations, and as the name suggests, repayment is desirably made on the day of receiving the paycheck, i.e., credit of the salary in the account. As of now, only a few online and app-based lending institutions offer Payday Loans in India. These loans are suitable only for extremely urgent requirements and should not be availed for discretionary expenses.

Some of the important things that you need to know about Payday Loans are:

  • The maximum amount available as a payday loan can go up to Rs. 1 Lakh.
  • Rate of interest is charged on a daily basis and can go up to 1% per day or 365% per annum.
  • Maximum repayment tenor available can extend up to 90 days.
  • Online application process.
  • Instant disbursal, directly to the bank account.
  • Available for individuals with a low credit score or no credit score even!

Cash Loans vs. Payday Loans

If you are wondering about the best option out of these two types of personal loans, then a comparative analysis will help you understand the better features and better suitability among Cash Loans and Payday Loans.

1. Interest rates and APR:

One of the most significant benefits that instant Cash Loans offer you over Payday Loans is the lower interest rates. In the case of a Cash Loan, the interest rate applicable starts can range from anywhere above 10 % per annum to a maximum of 28 % per annum. For example, if you avail of a CASHe Personal Loan, the interest rates start from 1.5% per month. But in the case of Payday Loans, the interest rates are extremely high and are charged on a daily basis, going up to 1% per day.

Likewise, the APR for Payday Loans can go up to 365% per annum, which is extremely high as compared to any other type of loan. The higher interest rates will exert a significant burden on your finances and you may find it difficult to repay the payday loan on time.

2. Repayment period:

There is a significant difference in the repayment period available for Cash Loans and Payday Loans. The maximum repayment tenor for Cash Loans can go up to 60 months or five years, which allows you to opt for an affordable EMI schedule. Though, in the case of a Payday Loan, the repayment tenor generally varies between 30 days to 90 days; as a result, the burden of the EMIs can be a bit too taxing to bear.

3. Quantum of Loan:

Cash Loans are available for substantial amounts ranging up to Rs. 5 Lakhs, making them ideal for handling various types of financial requirements, urgent as well as discretionary. But in the case of Payday Loans, the maximum amount available generally goes up to Rs. 1 Lakh, limiting their usage for different financial requirements. These loans are ideal only for urgent cash lapses of limited nature.

4. Options available:

Instant Cash Loans are offered by various types of lenders ranging from private banks, NBFCs, and online lending institutions. This allows you the option of shopping around for better deals. Moreover, you can avail Instant Cash Loans as a line of credit, where you pay interest only on the amount utilized. But when it comes to Payday Loans, the number of lenders offering this facility is extremely limited, thus leaving you with virtually no options to compare with, and making it one of the expensive credit forms.

5. Mode of application:

Both these types of loans support online mode of applications. You can apply for an Instant Cash Loan as well as a Payday Loan through the online mode. You only need to provide some basic details to avail these loans through an online application form. The amount is credited directly to your specified bank account. 

The above comparison would help you understand that instant Cash Loans are indeed preferred option as compared to Payday Loans. However, you need to adhere to the credit policy of the lender. In all, whatever form of credit you choose, make sure you act responsibly and avail only as much amount as you require and repay the loan in a time-bound manner.

Also Read: How to Avail Small Cash Loans Instantly This Festive Season

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