Payday loans are essentially short-term loans, lesser in terms of amount but have higher rates of interest. Usually individuals facing financial crunch use a payday loan as a temporary solution to alleviate cash flow problems. This is one of the reasons why payday loans have high rates levied on default cases. It must also be comprehended that a high rate of interest is not the only limitation of payday loans taken from banks. According to the Consumer Financial Protection Bureau, there are also hidden costs levied on the borrower. These costs are usually in the form of bank penalties, which add to the existing debt burden. For this reason, individuals in need of instant finance often end up resorting to credit cards or personal loans. Such problems are somewhat alleviated in case of Non-Banking Finance Companies. Let us find out how!
Problems of payday loan from banks
If you are a payday loan borrower you may also have to pay high bank fees from time to time. This happens when an unsuccessful attempt to debit money from borrower’s bank account is made in order to collect monthly payments. Additionally, if your account balance does not cover the loan amount to be debited, you shall be charged a lump sum amount from the bank. Your account may also be closed based on the guidelines and policies mentioned by your bank. Losing the ability to avail your banking services as a result of default encountered for a payday loan results in an additional loss of time and money.
Influence of payday lenders
Apart from banks, payday lenders also have a certain degree of influence in the overall debt charges that you will be incurring. It is the duty of the payday lender to deposit the proceeds from the loan in the bank account of the borrower. The payday lender also debits the account off monthly or annual charges to collect the repayment amount for the loan. Additional fees can mount rather quickly if unsuccessful attempt to debit this money is made more than once. It is also a common practice among such lenders to split the amount to be debited into parts and proceed to process these parts separately. In such cases if your account balance is lower than these individual amounts, several notices of balance default may be issued against your account. This process, therefore, puts you in additional burden to keep finance handy in your bank account at all times.
Other bank limitations
In some cases if your debit amount has been divided in parts, the bank may pay one of these and then proceed to charge the borrower who is also the account owner with an overdraft fee. This fee is charged along with a high interest rate and NSF fees on the other two parts of the debit amount. Payday lenders also charge fees for each time the debit fails and they have to process the payment again. Statistics indicate that 36% of borrowers have ended up losing their accounts as defaulters in payday loan.
Why NBFCs are more advantageous for payday loans
One of the foremost advantages of taking payday loans from NBFCs is that they let you control when and in what manner the lender accesses your bank account. A leading NBFC is also much faster than a bank in terms of approving your loan and crediting the amount in your account. This means that they are efficient under short notice and paychecks are cleared faster than in case of tedious bank routines. NBFCs approve payday loans for even those individuals who have poor credit score and would not easily get loans from banks. NBFCs also take into account that interest rate is one of the key deciding factors which influences the mind of the borrower. They have, therefore, tried to keep these rates affordable and sometimes even lesser than banks. You can also compare expenditure incurred in repayment of payday loan at various NBFCs, online. This will help you make an informed decision.