If you are a salaried person and need a large amount of money for an expense, your first reaction would be to check your savings account balance. But what if you do not have enough savings to cover your needs? In this scenario, you have two options to arrange funds – a salary advance loan or a personal loan. Although you may choose either of them, we suggest you check out the eligibility criteria for salary advance loans before you fill out the advance salary loan application.
Let us compare a salary advance loan to a personal loan and see which one is the better option for you:
What is a salary advance loan?
Salary advance loans are approved against your salary. The amount of the salary advance loan cannot exceed 2.5 times your net salary. The interest rates for these loans are high and can go up to as much as 50%. A salary advance loan is a short-term loan that you have to pay back within three months to 12 months. So, what are the eligibility criteria for salary advance loans? Banks will judge you based on your monthly income, your credit history and CIBIL score, and the total loan amount applied for. Once you file your advance salary loan application, the approval process usually takes two and three days.
What is a personal loan?
A personal loan is an unsecured loan. You can borrow between Rs. 50,000 and Rs. 25 lakh as a personal loan. There is a wide variation in personal loan interest rates, ranging from 8.95% to 36%. Most banks and financial institutions allow you to repay your personal loan within 60 months. However, some banks also allow you to repay it within 72 months. Your CIBIL score matters a lot in determining the interest rate. A CIBIL score of above 750 is considered excellent. So, most lenders will not take much time to approve your loan and give you a low-interest rate.
Why you should choose a personal loan over a salary advance loan
- Choice of lenders
In India, you have very few options for salary advance loans. Only a few lenders offer this loan. On the other hand, when it comes to personal loans, almost all lenders provide personal loans. So, if you go for a personal loan, you can approach more banks or NBFCs and choose one that gives you the best personal loan interest rate and tenor. In the case of a salary advance loan, you will not have too many choices.
- Loan tenor
When choosing a salary advance loan, you must repay the loan between three months to one year. But if you go for a personal loan, you can repay your loan within 60 months based on the loan agreement. This offers you far more breathing space to pay off your EMIs conveniently while also managing your other expenses.
- More loan amount
You cannot get more than 2.5 times your net salary as a salary advance loan. So, if your salary is Rs. 50,000, you will not get a salary advance loan of more than Rs. 1.25 lakh. In the case of a personal loan, you can borrow an amount as high as Rs. 25 lakh, provided you fulfil all the eligibility conditions.
- Room for negotiation
NBFCs and banks check your CIBIL score before approving your personal loan. Your CIBIL score also matters in determining your interest rate. If the lender deem your credit score as low, they are liable to reject your application or offer you a higher interest rate. If your CIBIL score is excellent, it is easy for you to get personal loan approval at a low-interest rate. On the other hand, when you go for a salary advance loan, lenders don’t give much value to your credit score. If the financial institution thinks you have a reliable job and salary, it will approve your loan. If your salary is too low, your advance salary loan application is likely to be rejected. Thus, there is no room for negotiation when it comes to the interest rate of a salary advance loan.
A personal loan is always the better choice when compared to a salary advance loan because it is more flexible and affordable. You have many lenders to discuss your requirements and negotiate for lower interest rates. Therefore, if you meet the criteria for a personal loan, we would recommend a personal loan over a salary advance loan.
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