With inflation (and expenses) increasing consistently, it is understandably challenging for folks to pull through the entire month with their salary. In such scenarios, they often turn to some form of credit, which assists in dealing with any unplanned or emergency situations such as sudden medical expenses, a family occasion, or even relocating to a new city. People often find themselves borrowing money from home despite living very frugal lifestyles. This is largely because the concept of an instant personal loan either terrifies them, or it cannot be sanctioned to them early in their careers. Admittedly, getting a quick personal loan in the early stages of your career, without high rates of interest, is difficult. However, we now have a better and simpler alternative in the form of salary advances.
What is a Salary Advance?
The concept of salary advances has been growing in popularity for quite some time now. The term refers to borrowers taking out small amounts of short term loans, often near end of the month, in order meet expenses. The salary advance loan is recovered in installments, at very low interest rates. With the concept of a salary advance catching up slowly, many leading apps like EarlySalary, are helping bridge the gap between employees and their expenses. Salary advance apps have also done away with the tedious and lengthy paperwork that would accompany the loans sanctioned at banks. We’ve discussed the concept in more detail in a previous post.
What is the difference between a Personal loan and a Salary Advance?
A loan is an amount borrowed for long-term financial needs – a form of debt that is repaid over a long period of time. Loans serve a variety of needs – for investments like a car, a house, or even educational expenses. An instant salary advance, on the other hand, is used for short-term financial needs. This amount, in the traditional sense of the term, is deducted by the employer from the employee’s salary itself. Sometimes, banks also offer salary advances, with a repayment cap of one year. For sanctioning a quick personal loan, banks look into your credit score and financial profile, even then the interest rate may not be favorable. Salary advances, though, come with very low interest.
Why should you choose a Salary advance over a personal loan?
#1 Age and income matters when you apply for a loan
Getting a loan sanctioned from a bank relies on a number of factors – including your age and income. If your income is on the lower side, as it may be at the beginning of your career, banks may be hesitant to lend you money. Low income results in you being charged high interest rates or having to submit more collateral. A salary advance, on the other hand, factors in many other parameters to arrive at a more accurate and holistic view of your credibility as a borrower.
#2 You need a decent credit score for a loan
A loan from traditional financial institutions almost certainly requires a credit score, and a good one at that. If your credit score is high, the interest on your loan will be low. Most young employees cannot take loans because they have no credit and need to build it. Taking any form of credit helps build your credit score, and hence, taking a salary advance should also boost your credit score.
#3 Taking a salary advance is more flexible
The procedure to take a salary advance has always been more convenient and flexible. Your salary advance is normally deducted from your succeeding pay-slips, which makes the repayment easier. Advance salary apps like EarlySalary offer a dynamic borrowing limit, depending on the kind of expenditure incurred.
#4 Rates of interest
The rate of interest levied on loans depends on a variety of factors – many of which young employees may lack since they’ve just begun their financial journey. This results in high interest rates or large collateral demands. Salary advances on the other hand, charge lower rates of interest. Additionally, they levy interest only on the money that is drawn and used, as opposed to banks where the interest is levied on the accumulated amount as soon as it is disbursed.
#5 A Salary advance has quicker disbursal
Getting a loan sanctioned at a bank can take you anywhere between weeks to months, and can be a tedious task with excessive paperwork. Salary advances don’t require much time or paperwork though. During times of emergency then, they are by far the best option. Salary advances are a quicker option since it does not involve any middleman. There are a number of apps available today which can help you secure a salary advancement.
With the rise in NPAs lately, banks are likely to tighten their purses. In times like these, credit based applications and solutions like EarlySalary are bridging the gap and serving a large need. Salary advance apps are making the process seamless and hassle free with their instant approval and quick cash transfer. Their partnerships with portals, like Amazon and Big Bazaar, only translates to more ease and convenience.