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IWhen you find yourself short of cash before your salary lands, payday loans can seem like a lifeline. In simple terms, payday loans are small, short-term advances, usually for a few days to a month, that you repay on your next payday.
Unlike traditional Personal Loans, which are repaid over months or years, payday loans online or offline cover urgent costs such as medical bills or unexpected repairs. Though they offer rapid access to funds, it pays to know exactly how they work and what they cost.
Understanding what is a payday loan and its pros and cons will help you choose the best solution for your cash flow needs.
A payday loan is a short-term, high-interest borrowing option. You typically borrow a small sum and agree to repay the full amount plus fees by your next salary date.
This means the loan’s tenure seldom exceeds 30 days. Essentially, the lender is betting that your next paycheck will arrive on time and clear the dues.
Though convenient, payday loans carry higher costs per day than long-term financing.
The process for payday loans online is generally quick and digital:
This cycle repeats with each new loan. Though speedy, missing repayment can lead to rollover fees and mounting costs.
These advantages make payday loans appealing when cash is tight.
Payday loan interest rates are usually very high and often charged as a fixed fee rather than a traditional annual percentage rate (APR). These rates can make borrowing expensive, even over a short term.
Interest Rate (%) = (Interest / Loan Amount) × 100
If you borrow ₹10,000 and repay ₹ 12,000 after 30 days,
Interest = ₹ 2,000
Interest Rate = (2,000 / 10,000) × 100 = 20% for 30 days
When annualised, such rates can exceed 200% or more
To be eligible for a payday loan in India, you generally need to be an Indian citizen aged 18 or older, have a regular source of income, and an active bank account.
Specific requirements may vary by lender, but common criteria include a full-time job, proof of identity and address, and sometimes a minimum CIBIL score.
Here's a more detailed breakdown:
General Requirements:
To get a payday loan in India, you'll generally need to provide proof of identity, address, and income, along with other documents like a letter from your employer and passport-sized photographs.
These documents help verify your eligibility and ensure you can repay the loan.
This can be your Aadhaar card, PAN card, voter ID, passport, or driver's license.
You'll need to provide documents like your Aadhaar card, passport, driver's license, voter ID, ration card, or utility bills.
This usually includes salary slips, bank statements, or other documents that demonstrate your earning capacity.
A letter from your employer or organisation confirming your employment and income details.
You'll typically need a few passport-sized photos for the application process.
Depending on the lender, they might also require a document proving your age.
It's important to note that these are general requirements, and specific lenders may have additional requirements.
It's always a good idea to check with the lender directly for their specific documentation needs. Having these ready ensures a smooth, instant payday loan online application.
Taking time to compare can save you from spiralling costs. You can use an EMI calculator for Personal Loan to compare the EMIs for different tenures before applying for a loan.
Borrow responsibly, view payday loans as a last resort for genuine emergencies.
Aspect | Payday Loan | Personal Loan (from L&T Finance) |
---|---|---|
Tenure | Up to 30 Days | 12 to 72 Months* |
Loan Amount | ₹ 5,000 to ₹ 50,000 | Up to ₹ 30 Lakh* |
Interest Rate / APR | Very High | 11 %* p.a. onwards |
Eligibility | Basic income proof | Income proof, credit check, Personal Loan without salary slip often possible |
Repayment Cycle | Single repayment on next payday | Monthly EMIs via emi calculator for Personal Loan |
Disbursement Process | Minutes via digital mandate | 1–2 Days after document verification ( Personal Loan disbursement process ) |
This comparison shows why payday loans are for urgent, short-term needs, while Personal Loans provide greater borrowing capacity at lower annualised cost.
Payday loans make sense when:
For most other needs such as home renovation or wedding expenses, a Personal Loan L&T Finance could be a great choice.
A payday loan is a quick, short-term financial fix, ideal for genuine emergencies but carrying high costs. Always weigh interest, fees and repayment terms carefully.
For planned expenses or larger needs, explore L&T Finance’s Personal Loan options, which offer longer tenures, lower rates and clear eligibility, plus digital tools to check Personal Loan eligibility calculate EMIs.
Borrow prudently and ensure you can repay on time.
A short-term, high-cost loan that is repaid on the borrower’s next payday.
Generally fixed-rate, with fees set per loan term rather than a floating interest rate.
It is unsecured. No collateral is required, though credit checks and mandates apply.
Complete an online application with basic ID, salary proof and bank mandate for repayment.
APRs often exceed 200-300%, translating to high fees over very short terms.
Photo ID, address proof, salary proof (bank statement), and a cancelled cheque.
Yes, late repayments or defaults can severely damage your credit history.
Typically ₹ 5,000, though some lenders may offer lower amounts based on your income.