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Personal overdrafts: The new nascent market in India

27-year-old Research Analyst Manish Dubey wanted INR 15,000 for a medical emergency in his family but it was only the 13th of the month and he had to wait for another 17 days for his next salary to come. 

 With consultations from one of his colleagues, Manish approached a fintech startup offering hassle-free unsecured quick cash loans at affordable interest rates and his problem was solved. All he had to do was upload his salary slip, bank account statement and PAN card details. Manish got the money within 24 hours after getting a few documents signed and repaid the amount immediately after his salary got credited to his account. And no, this wasn’t a personal loan. This was what is known as a payday loan.

After gaining widespread popularity on international shores, payday loansarefast catching up among Indian salaried class as well. These are easy to apply for and hassle-free in terms of the eligibility factor, with loans being disbursed in as little time as 24 hours. Payday lenders consider no credit report or history of the borrower to lend the money. Considering all this, payday loansmay sound like a great idea to young salaried professionals in dire need of money before their next paycheck arrives.However, there isa major catch to it that inexperienced borrowers often miss out on, leading them to an unfavorable debt situation.

Since the tenure of the loan is short – between 1 and 4 weeks – lenders use a combination of high processing fee and interest rates to justify the business proposition which makes the payday loan one of the costliest products in the market, often much higher than borrowing on your credit card.Payday loans charge an interest rate between 45% and 50%, with some companies charging as much as 60%. Moreover, failing to repay the loan on time will lead to doubling of the interest rate for the next repayment schedule. Often borrowers with outstanding debts take payday loans to pay off current EMIs.This only adds to their debt burden, and affects their credit score in the future, not to mention the additional fines and penalties they must pay.

A simplerand more affordable alternative to payday loans is the personal overdraft. It allows salaried professionals to avail an overdraft loan on basis of income eligibility and other merits, just like any other loan offering. You can get an overdraft limit sanctioned as per your convenience and use as per your requirement, interest is payable only on outstanding overdraft amount.Personal overdraft is a recommended borrowing option for salaried professionals in need of funds to manage their monthly living expenses including rent, EMIs, etc. or in case of emergencies. Applying for a personal overdraft is easy since all you need to provide is details of your employment, salary slips, PAN number and details of any current EMIs, if any.

Personal overdrafts generally have a quick disbursal rate of 1-2 days, are available at affordabler interest rates as compared to payday loans and credit card withdrawals. Personal overdrafts are less stringent to operate and offer absolute flexibility of repayment with no prepayment or foreclosure charges applicable , hence enabling you save you as much as 20-30% on interest. The repayment period is also longer, allowing borrowers to choose tenuresbetween 12 and 60 months depending on their monthly income and convenience.

Although, the overdraft service has been available for traditional bank account holders with business income, there were very few salaried users Now with fintech introducing fast and convenient personal overdraft services for salaried customers, availability of credit has never been this easier for Indians.


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