People often take payday loans at some point or the other in their life to meet immediate financial needs. Payday loans are small loans that help you get going until your next paycheck arrives. Usually, the borrower promises to repay the loan within the next couple of weeks at a fixed interest rate.
If you applied for a payday or personal loan, here are some critical details of loans, including the Money Lender Credit Bureau (MLCB), typical interest rates, return period, etc.
A payday loan is different from a personal loan
While payday and personal loans come under the global lending market, they are different. A personal loan is one that people take from banks or other financial institutions with the assurance of paying the amount back within a fixed period with interest. It would be best to have a specified income and a loan-worthy credit score for most personal loans.
On the other hand, a payday loan is a short-term albeit high-cost amount that one borrows to make ends meet until the next payday. These loans are easier to get than personal ones. However, the loan amount must be less than the applicant’s income.
Like with any other financial tool, a payday loan should be used prudently by borrowers to avoid falling into debt.
Payday loans are suitable for those with bad credit
Since payday loans are offered at excessive interest rates, most lenders, including banks and credit unions, do not check the applicant’s creditworthiness. At the most, they ask for reliable proof that the applicant’s paycheck will arrive at the claim date.
Therefore, even those with a questionable credit score or history can easily avail of this type of loan to pay outstanding bills, rent, medical invoices, and other personal expenses. However, if borrowers with bad credit reports fail to repay the loan amount within the stipulated time, it will adversely affect their future loan prospects.
The role of MLCB
The Law Ministry established the Money Lender Credit Bureau to make the loan process more accessible and more transparent for both lenders and borrowers. It is a highly vital establishment that stores crucial data on all loan applicants in the country. This data includes the number of loans someone has taken, excellent payment history, and current loans, among other details.
So, when you ask for a loan, the lenders have access to your individual credit data report card that lets them know of your creditworthiness. Rest assured that your personal information is not shared with any outside parties, ensuring that your privacy remains uninvaded. However, the lender has the right to reject your application if your report indicates a bad repayment history.
An advantage for borrowers is that they have the option to access their credit reports in exchange for a small fee at any given time. The system assists them in effectively keeping track of all their active loans and managing them well. Moreover, it can prevent them from taking too many loans and falling into a massive pit of debts.
Benefits of payday loans
Depending on the amount, income, and other factors, The average interest rate on a payday loan can be anywhere over or under five per cent. Despite the high-interest rate, people take advantage of payday loans because of the incredible benefits it offers. Some of them are:
- Quick access to vast amounts of money for emergencies.
- An easy online process with less paperwork to submit and no reviews of credit history.
- No collateral is needed in most cases.
- Loan offered by licensed lenders, eliminating the need to look for loan sharks.
- Flexible repayment options depending on the lender.
- The money can be used for anything.
While the above benefits are impressive indeed, it is advisable to apply for a reasonable amount of money with licensed lenders to avoid falling into debt traps.