Explained: Advance salary loan vs personal loan; understanding key differences

An advance salary loan, also known as a salary advance loan, is a type of loan that is specifically designed for salaried employees. As the name suggests, this type of loan allows employees to borrow money against their future salary, providing them with access to funds when they need it most.

How is it different from Personal Loan?

The purpose for which a loan may be used is one of the primary distinctions between an advance salary loan and a personal loan. Personal loans are frequently unsecured loans that can be used for a variety of things, such financing home renovations, consolidating debt, or going on vacation. On the other hand, advance salary loans are normally solely utilised to meet short-term financial requirements, such as unforeseen costs or a short cash flow constraint.

The procedure for applying for the two types of loans is another significant distinction. When applying for a personal loan, the credit history is normally checked more thoroughly, and additional documentation, such as proof of employment and income, may be required. Advance salary loans, in contrast, are usually approved based on the borrower's job status and salary, and the application procedure is generally simpler.

Benefits of advance salary loan:

For salaried employees, advance salary loans have a variety of benefits. The convenience of being able to access money quickly and easily is one of the key benefits. The approval process for these loans is frequently quicker than for other types of loans because it is dependent on the borrower's salary. Moreover, the loan can be released quickly, typically in 24 to 48 hours, enabling borrowers to get the money they require right away.

The flexibility that advance salary loans offer is another benefit. The typical loan repayment period is between 12 and 24 months, which is acceptable for most borrowers. This enables borrowers to manage their loan instalments with ease and ensure that they can pay back the loan in full and on time.

Eligibility criteria for an advance salary loan:

You normally need to be a salaried worker with a stable income and a strong credit score to qualify for an advance salary loan. Moreover, you must have worked for the same company for a predetermined period of time, typically at least 6 to 12 months. A minimum monthly salary of Rs. 20,000 - 25,000 is also required by banks and NBFCs.

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