If you think about it, you will always have things to buy and bills to pay. Not to mention, unforeseen emergencies can crop up at any time and throw your financial planning out of the window. That is why it is crucial to know about different financial products when facing a cash crunch.
While personal loans are the expected route for many, you can consider other financial instruments as a working professional. And one such loan product is an advance salary loan.
What is an advance salary loan?
If you are a salaried professional in India, you can opt for a salary advance loan when you require cash in a pinch. It is a short-term loan that has been designed for situations and expenses that you cannot put off until your salary is credited.
The duration of an advance salary loan is usually short and can differ from bank to bank. Unlike the personal loan repayment tenure, you are expected to repay the advance salary loan within a month or more.
In a nutshell, an advance salary loan is meant for borrowers who don’t want to take personal finance and have an urgent financial obligation to fulfil before their salary arrives.
Advance salary loan vs personal finance – which is better?
Now, let’s compare the two borrowing options.
- Interest rates
The interest charged on both loans for personal use and salary loans usually fall in the same bracket. However, personal loan interest rates are more competitive since the market competition is steeper.
- Loan amount
If you require a higher loan amount for a significant expense or a medical emergency, personal finance is the better choice. This is because you can get a higher loan amount to fulfil your financial requirement. Advance salary loans are meant for more minor expenses like taking a trip, buying a gift, paying the house rent, etc.
- Credit score
Unlike the personal loan eligibility criteria, you don’t need a high credit score to get an advance salary loan. This is why a salary loan is a more convenient option if you have just begun your career and don’t possess a decent credit history.
- Loan tenure
Personal loan can offer you a longer tenure to repay the loan than an advance salary loan. And a longer tenure can further reduce your EMI burden and make your monthly instalments more manageable. You can also use a personal loan EMI calculator to get a precise estimate of your EMIs and plan your finances in advance.
- Quick disbursal
If you need funds at the earliest, an advance salary loan can offer quick application processing and instant disbursal of funds. Unlike personal finance, you don’t have to submit any paperwork, and the amount is directly transferred to your account within 24 hours. However, nowadays, many lenders also provide personal finance in just a couple of days.
So you see, there is no clear winner here. Both loans have their strengths and are designed to fulfil different requirements. To make the right choice, therefore, you must think about your financial goals and find a suitable lender to borrow a loan on favourable terms.