Salary Advance Apps vs Personal Loans—Which One's Safer?

When deciding between salary advance apps and personal loans, it is crucial to consider their safety and suitability for your financial needs. Here is a straightforward comparison:

1. Interest Rates

When comparing salary advance apps and personal loans, interest rates play a crucial role. Salary advance apps often charge monthly interest rates between 2% to 3%, which can accumulate to 24% to 36% annually. 

Personal loans from banks typically have annual interest rates ranging from 10.49% to 16.65%, depending on the lender and the borrower's credit profile.

Let's consider an example of a boy named Gautam:

In the short term, salary advance apps may seem cheaper due to lower immediate repayments. However, over time, personal loans can be more cost-effective because of their lower annual interest rates. 

It is essential to consider the total repayment amount and interest when choosing between the two options.

2. Repayment Terms

Repayment terms are a key factor when comparing salary advance apps and personal loans. Salary advances are short-term loans, typically repaid within 3 to 12 months. They often come with higher interest rates, around 2.5% per month. 

Read More – The Hidden Dangers of Payday Loans

Personal loans, however, offer longer repayment periods, ranging from 12 to 60 months, with annual interest rates between 10% and 24%. This extended tenure allows for lower monthly instalments, making personal loans more manageable for larger expenses.

Let's consider Mayank, who needs ₹1,00,000.

In this example, the personal loan offers a lower EMI and total repayment amount. Therefore, for longer repayment periods and lower interest, personal loans are generally safer and more economical than salary advances.

3. Credit Impact

Salary advance apps offer quick cash but often don’t report to credit bureaus. So, repaying them on time may not help your credit score. However, if you miss payments, it can still hurt your score.

Personal loans, on the other hand, are reported to credit bureaus. Making timely repayments can help improve your credit score. But late payments can lower it.

Example: Mayank's Loan Choices

Mayank took a salary advance of ₹30,000. He repaid it on time, but his credit score did not improve. Later, he took a personal loan of ₹1,00,000. By paying EMIs on time, his credit score increased.

4. Loan Amounts

Salary advance apps and personal loans differ mainly in the loan amounts they offer. Salary advances are small, short-term loans, usually up to ₹1,00,000, repaid within 3–12 months. They are quick to get, but come with higher interest rates. 

Personal loans, on the other hand, offer larger amounts, ranging from ₹50,000 to ₹40,00,000, with repayment periods of 12–60 months. They have lower interest rates and are suitable for bigger expenses.

Here is an example:

In this case, Faiz needs ₹6,00,000. A salary advance won't suffice, as it is limited to ₹1,00,000. A personal loan meets his requirement with a manageable EMI.

5. Long-Term Financial Health

Choosing between salary advance apps and personal loans affects your long-term financial health. Salary advances offer quick cash but come with high interest rates and short repayment periods. 

Personal loans, however, provide larger amounts, lower interest rates, and longer repayment terms, making them more manageable over time.

Example: Bhushan's Financial Choices

Bhushan needed ₹30,000. With a salary advance, he faced higher monthly payments over a shorter period, which strained his budget. The personal loan, despite a slightly higher total repayment, offered lower monthly EMIs and positively impacted his credit score when paid on time.

Also Read - What Are the Safest Ways to Get an Instant Loan

In the long run, personal loans are safer and more sustainable for financial health.

Conclusion

Salary advance apps are quick but cost more in the short term. Personal loans have lower rates and longer repayment terms, making them safer and better for long-term financial health. Choose wisely.

FAQs

1. Which is cheaper, a salary advance app or a personal loan?

Personal loans are usually cheaper due to lower yearly interest rates.

2. Do salary advance apps help improve my credit score?

No, they often do not report to credit bureaus.

3. Can I borrow more money with a personal loan?

Yes, personal loans offer higher amounts than salary advances.

4. Which is better for long-term financial health?

Personal loans are safer with lower rates and longer repayment times.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?