The difference between personal loan and a salary advance is that under personal loan you are issued a loan amount by the bank and under salary advance you are issued an advance payment by the employer. The detailed breakdown between the both has been described here in this article.
Personal loan
A personal loan is issued by the bank considering the creditworthiness of the borrower. A loan can be used for various purposes either for payment of debt, meeting business requirements, personal travel, marriage expenses, or any personal needs.
The various factors such as salary withdrawn, credit history, credit score, employment status, employment tenure, income, age of the applicant and many other factors are considered before issuing the loan.
Advantages of personal loan
- Immediate assistance to cash
- Simple documentation and processing
- No restrictions on the nature of usage
A personal loan has an interest rate associated with it, the rate of interest will depend on the applicant credit worthiness. The repayment of the loan is simple and easy, the personal loan can be preclosed but check with the bank if there are any preclosure charges associated with the loan.
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Features of personal loan
- Quick and simple to obtain
- Collaterals are not required
- Simple process and less documentation
- Repayments are flexible
- Flexibility on loan amount usage
- High loan amount
Salary Advance
Salary advance is a kind of short term loan where the employer will issue an amount considering the future salary payments. The process will include a note or canceled checks collected by the employer as a security deposit. This will be to ensure that the loan payment is repaid by the employee.
The minimum amount of salary is decided by the management to issue a loan against the salary. Generally the salary advance amount is 90% of the salary. The salary advance is paid at the end of the month and the repayment may be deducted from the future salary or the employee has the option to repay as a one time payment.
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Advantages of Salary advance
- You can get cash assistance from employee when you need it
- Lesser risk as there is no huge rate of interest
- Simple documentation and processing by the management
Salary advance is like a loan which is due to be paid by the employee. It is different from loans received from banks or family or friends. The terms of repayment are decided by the company and the employee must repay the salary advance as this will directly affect the performance of his role in the company.
Future incomes are at stake for the employee, either the complete loan amount is put on hold in monthly payment or installment deductions are done by the company. The employee has the option to select either installment deduction or withholding the entire amount.
The company can issue instructions to the bank to issue a salary advance and arrange to collect by deducting the same amount partially every month.
Features of Salary Advance Loan
The following are the features of salary advance.
- No credit score check is required.
- Minimum salary is AED 5,000 or any amount as decided by the bank
- During month salary advance should be paid back or as decided by the terms of the employment contract
- A transaction fee is levied by the bank for providing salary advance
What to choose: A personal loan or Salary advance?
You can decide on this question considering a few very important factors such as the loan amount, urgency of cash requirement and your plans for repayment.
If your amount requirement is higher than your salary and you need it urgently with the readiness to make payment even with high interest then you can select the personal loan.
On the other hand if your amount requirement is less and do not want high bank charges then go for a salary advance.
If you want a quick loan amount and are also okay with paying high interest then choose a personal loan. The benefit here is you can repay the loan up to 60 months.
Personal loan has its own benefits and drawbacks and on the other hand salary advance is a benefit provided by the employer to the employee. Choose according to your requirements what suits best for you in a given situation.
Take away
Salary advance is provided by the employer and personal loan is provided by the bank. Personal loan is supreme to salary advance in terms of high loan amount, longer repayment tenure and other benefits such as insurance.
What to choose is purely the discretion of the employee if you are choosing for salary advance then you’re putting your future income as collateral. Choose wisely either personal loan or salary advance for both debts you have to any day make full payment but what is at risk it is your choice to decide.