{"id":29432,"date":"2023-08-28T12:22:41","date_gmt":"2023-08-28T12:22:41","guid":{"rendered":"https:\/\/www.tatacapital.com\/blog\/?p=29432"},"modified":"2026-08-18T20:38:22","modified_gmt":"2026-08-18T15:08:22","slug":"payday-loans-in-india-what-is-a-payday-loan-and-how-does-it-work-in-india","status":"publish","type":"post","link":"https:\/\/www.tatacapital.com\/blog\/personal-use-loan\/payday-loans-in-india-what-is-a-payday-loan-and-how-does-it-work-in-india\/","title":{"rendered":"What is a Payday Loan in India? Meaning, Process & Interest Rates"},"content":{"rendered":"\n

<\/p>\n\n\n\n

Payday loan meaning is a short-term, high-interest loan designed to help individuals cover urgent expenses, featuring quick processing, minimal documentation, and lump sum repayment.<\/p>\n\n\n\n

Financial emergencies tend to come out of the blue, catching you by surprise. You might need urgent funds to tide you over in such an event. In this case, you may consider a payday loan. Bridging your end-of-month cash crunch gets easier when you get a payday loan. Here is what you need to know about what is a payday loan and how it works in India, as well as how to apply for a payday loan.<\/p>\n\n\n\n

What is a payday loan?<\/strong><\/h2>\n\n\n\n

A payday loan also called a micro-loan<\/a> or a payday advance is a type of short-term unsecured loan<\/a> given to borrowers to cover their immediate monetary needs until they receive their next salary. Since the loan is unsecured, there is no need for collateral or guarantors. So, these loans may be provided to loan applicants who fail to get a personal loan<\/a> due to having a low credit score. As the risk is high, payday loans tend to have high-interest rates. The repayment tenures on these loans range from 7 days to 60 days.<\/p>\n\n\n\n

How Payday Loans Work in India: Key Features and Terms<\/strong><\/h2>\n\n\n\n

To understand what is a payday loan better, here is what you need to know about the working of payday loans in India:<\/p>\n\n\n\n

Based on your salary<\/strong><\/h3>\n\n\n\n

The amount you receive from a payday loan is dependent on your current salary, which is why it is considered a payday advance. Lenders typically sanction a small amount, usually a portion of your monthly take-home pay rather than a multiple of it, since the entire loan must be repaid from a single salary credit. To verify your repayment capacity, the lender reviews your latest salary slips or bank statements that show regular salary deposits. The repayment date is then aligned with your next payday, so the loan amount, your verified income, and the repayment timeline are all tied to a single salary cycle.<\/p>\n\n\n\n

Short tenures<\/strong><\/h3>\n\n\n\n

Payday loans have short repayment tenures ranging from seven to 60 days. Some lenders may offer payday loans with repayment tenures of up to 3 months (90 days). The loan usually has to be repaid by the borrower\u2019s next payday or the date of receipt of some other form of income, such as a pension. Hence, these are like payday advances.<\/p>\n\n\n\n

Method of disbursal<\/strong><\/h3>\n\n\n\n

You may receive your payday loan via a prepaid credit card, cash, or a cheque that gets electronically deposited into your bank account.<\/p>\n\n\n\n

Ease of application<\/strong><\/h3>\n\n\n\n

It is very easy to apply for payday loans online. There is minimal documentation, such as providing proof of identity and address as well as your most recent salary slip\/bank statement.<\/p>\n\n\n\n

No credit checks<\/strong><\/h3>\n\n\n\n

There is no credit check done for payday loans. This is why someone who does not get approval for a personal loan may still get approved for a payday loan.<\/p>\n\n\n\n

No collateral<\/strong><\/h3>\n\n\n\n

Payday loans do away with the need for collateral like a secured loan. It also does away with a guarantor like personal loans.<\/p>\n\n\n\n

Instant payday loans<\/strong><\/h3>\n\n\n\n

Lenders often advertise for instant payday loans that you can avail of through their websites and mobile apps. They are called instant payday loans, as the time taken for disbursal is very short.<\/p>\n\n\n\n

Eligibility<\/strong><\/h3>\n\n\n\n

You need to be an Indian citizen over 18 years old. You should be earning an income either through a salary, business, or self-employment.<\/p>\n\n\n\n

Interest rate<\/strong><\/h3>\n\n\n\n

As payday loans have a short tenure and do not ask for a guarantor or collateral, the interest rate charged by lenders can be as high as 30\u201350%.<\/p>\n\n\n\n

Extension of a credit line<\/strong><\/h3>\n\n\n\n

In some cases, the working of payday loans may be that the lender may offer you a credit line in place of a term loan. So, the lender will grant a certain amount of credit to you; you can withdraw however much you require from that amount as and when required. You can close the credit line at any time. Otherwise, the credit line gets replenished every time you make a repayment.<\/p>\n\n\n\n

Multipurpose<\/strong><\/h3>\n\n\n\n

Payday loans can be used for any purpose. It could be used to pay your utility bills or credit card bills. It can also be used to pay education fees or for an impromptu vacation. The lender will not inquire as to how the funds are finally used by you.<\/p>\n\n\n\n

Avoid defaulting on repayment.<\/strong><\/h3>\n\n\n\n

Lenders may charge up to approximately a 4% interest rate daily when you default on your repayment. This could lead to a large debt and a reduced credit score<\/a>.<\/p>\n\n\n\n

No closure fees<\/strong><\/h3>\n\n\n\n

Payday loans do not have pre-payment or part-payment fees. So if you get the money needed to pay off the loan amount, you may do so even before the end of the loan tenure.<\/p>\n\n\n\n

Interest Rates and Costs for Payday Loan<\/strong><\/h2>\n\n\n\n

The cost of a payday loan is where borrowers need the most caution. These loans are unsecured, sanctioned within hours, and often given without credit checks, lenders price them far above regular credit products. Four things define what you actually pay:<\/p>\n\n\n\n