Explained: 'Quick cash’ — What are payday loans, when can you borrow this money? Risks, eligibility, documents required

Payday loans are short-term, unsecured advances used for emergencies. Check risks, eligibility and documents required before you consider one. 

A cash crunch or a sudden expense just days before your salary arrives can put you in a difficult spot, especially if you don't have any savings or access to a credit card. This is where payday loans can seem like a easy way to bridge the gap, but they also come with high interest rates, fees and strict repayment timelines.

Before applying for a payday loan, borrowers should understand how much they will have to repay and whether they can comfortably meet the repayment deadline. If such factors are not taken into consideration, it may put you in a loop of debt trap and even lower your credit card for future borrowings.

What is a payday loan?

A payday loan is a short-term, unsecured advance that you can use for emergencies and other urgent expenses between salary days. These loans can be repaid between two weeks and a month or until your next payday, depending on the lender's terms and conditions.

Since payday loans are generally unsecured, you do not have to put up physical collateral like a car title or property deed to get one.

These advances are legal in India, but only when they are disbursed by a bank, NBFC, or a Reserve Bank of India (RBI) regulated entity, either directly or through an authorised lending service provider (LSP).

The RBI’s digital lending directions lay down requirements for regulated entities on how digital loans must be priced, disclosed and collected from the borrower. However, payday loans as a product are not separately regulated by the RBI.

How do payday loans work in India?

You can obtain a payday loan from a lender's branch or online portal. These loans typically involve a quick approval process with minimal documentation, particularly when the lender can verify your salary or income details.