While both personal loans and salary loans are used during emergency financial crises, they are fundamentally different from each other. Both have their own set of uses and attributes. This article states the fundamental differences and mentions which is better among the two.
What is a Personal Loan?
A personal loan is a form of financial assistance given to an individual without any collateral. Personal loans are often used to meet up sudden financial deficits experienced by individuals. It is reasonably easy to get, provided you have a stable source of income and meet the other personal loan eligibiliy criteria. Once given, you can pay the loan back in easy monthly instalments and interest, usually in the 18% p.a bracket. Similarly to a salary advance loan, you have to fill and submit an online application along with the necessary documents to apply for a loan. While most repay tenure ranges from six months to six years, one can foreclose the loan according to the contract. However, these contracts vary between lenders, and it is essential to understand them before you sign.
What is a Salary Advance Loan?
A salary advance loan is very similar to a personal loan but different on a fundamental level. A salary advance loan is an unsecured loan that is disbursed against the salary. While availing of a salary advance loan, you can avail yourself of almost as much as 2.5 times your salary. You can later pay off this loan in EMIs over a tenure of 3-12 months.
Applying for a salary advance loan is a reasonably simple task. First, you have to fill up the online application and upload the documents needed. These documents are then verified by the officials of the lender, after which the KYC takes a mere couple of minutes. Finally, the amount is credited to the account soon after the loan is approved.
An advance salary loan charges an interest rate of 2.5% every month, which has to be paid over fixed EMIs during the loan tenure. However, you can prepay and foreclose the loan without a prepayment penalty if you have served the loan for six months. Therefore, it is mainly used for emergencies requiring a small amount of controlling damage during crises.
Salary Advance Loan vs Personal Loan
While both are similar on certain accounts, a salary advance loan is different from a personal loan. Below are different points based on which you can compare a personal loan and a salary advance loan.
- Flexible Amount of Loans
While salary advance loans are limited to Rs 1,00,000 for an individual, a personal loan can be as high as Rs 25,00,000 for individuals and MSME. A shorter credit indicates that you can use it only for emergencies that require a small amount of money to be met. However, the amount is considerably higher for personal loans and can meet more extensive and more crucial situations that may need a substantial sum of money.
- Flexible payback time
The number of times lenders mention a salary advance loan ranges between 3 months to a year. On the other hand, the payback tenure for a personal loan varies from 6 months to 6 years, and in some cases even seven years. However, the similarity is that you can pay off both the loans before the complete tenure. In addition, the terms and conditions of a personal loan are not as rigid as a salary advance loan. Therefore, taking out a personal loan is more feasible than a salary advance loan.
- Interest rates
While a salary advance loan seemingly has a lower interest rate, the annual accumulation of the interest makes it substantially high and unfeasible. The annual interest rates for an individual would amount up to as much as a credit card. A personal loan, however, offers a lesser interest rate, making it more affordable and feasible. Opting for a lender offering a low-interest rate also helps profusely in such cases!
- Effect on credit score
When fully paid back with interest, a personal loan has a more significant impact on your credit score than a salary advance loan. This is because borrowing and paying off a more extensive amount boosts the credit score more significantly than a smaller amount from a salary advance loan. In addition, having a good credit score increases your chances of having your loan approved in the future.
If you’re looking for a personal loan, apply for it at trusted, authentic institutions. With their unique range of features and excellent customer services, you’re sure to have a great experience.