HYDERABAD:It's now easy to get instant loans for small amounts via apps but for an interest rate higher than bank rates. These apps are mostly used by students and the salaried class to meet month-end credit crunch but personal finance experts say taking instant loans is not a wise idea for a salaried person.
There are many such applications available for download on Google play store that can give you loans against your salary for amounts as low as `1,000 for interest rates ranging anywhere between 24 and 48 per cent per annum. Some of the most popular apps are Cashe, Moneytap, Smartcoin, InstaLoan, EarlySalary, Home Credit, among many others. These apps collect details such as your salary slip, bank account, aadhaar, address and other personal details. Many of them use Artificial Intelligence (AI) as a tool to crawl through your social media to gauge the creditworthiness of the person trying to avail the loan.
Little known to those availing the instant loan service also have hidden charges that come in the form of a processing charge included as a flat fee or an interest rate of 0.5 per cent of the loan amount taken. Banks give loans only for amounts greater than `1 lakh and charge interest in the range of 11 to 22 per cent per annum.
Arvind M, is a 31-year-old ex-sailor presently working at a chemical engineering firm at Madapur, drawing a salary over Rs 40,000 per month. But he finds himself borrowing to make ends meet the last 10 days of almost every month. "I do pay back the money I borrow on time," says Arvind but for the past six months he has been using one of the above-mentioned apps."I apply for a loan amount that can help cover my expenses for the last 10 days of the month and I pay back next month. I don't do it always but mostly when necessary. I have a good credit score, so my applications don't get rejected," he added.
In the long-term, however, Arvind now pays more for the few bucks he lent through the app. Write down your expenses item-wise on a daily basis on a spreadsheet. Prepare them on a monthly basis. Review the spreadsheet containing your expenses on a quarterly basis. Doing a quarterly analysis of your expenses will help you understand what you spend the most on. This information will help you take corrective course correction and plan better," is what Vipul Shah, Chief Executive Officer, Lakshya Financial Planner has as advice for those who find themselves availing instant loans from these apps.
"Mostly those who face credit crunch during month end go for this thinking they can settle off the loan and gain financial disciple within a month. Most people end up defaulting and repayment becomes a problem," he added.